Finance 571 Week 1 Paper

The Financial Environment: Concepts and Principles

FIN 571

January 23, 2011

Instructor: Allen Monjazeb

Concepts and Principles

Guillermo furniture manufacturing is located in Sonora, Mexico. Sonora is a beautiful vacation spot, and it is also a large furniture manufacturing location in North America. Guillermo Navallez has been making furniture for years near his Sonora home. The area had a good supply of timber for the variety of tables and chairs produced by his company. Labor was also relatively inexpensive. In addition, he priced his handcrafted products at a slight premium for the quality they represented. Overall, life was good for Guillermo until recently when a new competitor moved into the area (University of Phoenix).

In light of these new developments, Mr. Navallez has decided to search for answers by re-examining the foundational principles that he learned while obtaining his business degree from the University of Sonora. The first principle that Mr. Navallez recalls from his old school days is the behavior principle. The behavior principle states that when all else fails, look at what other are doing for guidance (Emery, Finnerty, & Stowe, 2007). Mr. Navallez quickly heeded this advice by investigating how his competitors are responding to this new threat. He soon finds that many of them are consolidating into larger organizations by merger or acquisition. After finding that this approach has been successful for similar small furniture business, Mr. Navallez quickly discover a company in Norway that has been looking for channels to distribute in North America. The next principle that he remembers is the principle of self-interest behavior. This principle says that people act in their own financial self-interest. In other words, When all else is equal people will choose the course of action that is most financially advantageous to themselves...