Guillermo Store Recommendation

GUILLERMO FURNITURE STORE RECOMMENDATION

Arika Fitzgerald

FIN/571: Corporate Finance

July 12, 2011

Mike Derringer

Guillermo Furniture Store Analysis

Guillermo owns a furniture store that offers a variety of unique handcrafted tables and chairs in Sonora, Mexico. Guillermo has been successfully making furniture for many years due to an abundance of available resources that include a vast supply of timber and inexpensive labor. Lately, he has seen a decline in purchasing and demands for his product, which has affected his sales and his costs to do business. Guillermo now confronted with a new competitor offering the same quality of products at a fraction of the price is causing Guillermo to come up with alternatives ways of doing business.

The essence of any business operation is to maximize profits. This is only achieved when the business is able to meet its recurring costs and have a surplus available for reinvestment or payment as dividends to the owners. Guillermo’s case requires a critical investigation into the business operations to determine available to him. Given the current situation, Guillermo has three very viable options to consider Project Current, Project High-tech, and Project Broker. He could either maintain the present business model and continue operations at current capacity, or adopt a new business model by embracing high technology by investing in highly automated machines similar to what the competitor is using or change his operations and instead become a broker for one of the largest competitors trying to enter the North American Furniture market. After Guillermo has weighed his options he know can choose which alternative would best suit his situations and calculate the Net Profit Value (NPV and determine the weighted average cost of capital (WACC) for it.

Project Current:

Guillermo currently runs a business and operations model that is focused on manual labor to produce both med-grade and high-end pieces...