Guillermo Analyusis

Guillermo’s Furniture Store Scenario Analysis

Vanessa D. Smith

July 5, 2011

FIN/571 Corporate Finance

Instructor: Elham Monjazeb

The Guillermo Furniture Store Analysis

Guillermo Navellez, is the owner of Guillermo’s furniture store a local manufacturing plant located in Sonora Mexico. The store has operated a successful business creating high-end and mid-end grade furniture. In the later part of 1990 Guillermo realized that other companies similar to his own had become interested in making chairs and tables. The competition has forced Guillermo into considering other alternatives available to the Guillermo Furniture Store. Guillermo is requesting information on other alternative, a sensitivity analysis, a determination of the optimal weighted average cost of capital as well as the use of multiple valuation techniques in reducing the company’s risk. He is also requesting a calculated NPV for future cash flows. These goals are through three alternatives; The current position, a Hi-Tech position which, means Guillermo would upgrade his manufacturing techniques and turn his investment into a highly automated production process. This high technology includes robotic technology and equipment. The final option would be as a distributor/Broker for the competitors currently operating in Norway. As a Broker, Guillermo would have the opportunity to distribute as a foreign manufacturer.

 When considering Guillermo furniture, a manager’s responsibility would involve the use of a capital budgeting techniques. These techniques include a simple payback period, a discounted payback period and the net present value. The simple payback period method is defined as the expected number of years required to recover from Guillermo’s original...