Fin 571

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Category: Business and Industry

Date Submitted: 01/20/2012 08:55 PM

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In this paper I will explain some principles of finance concepts and how they relate to the context of the Guillermo Furniture Store. Guillermo Navallez made furniture for years near his Sonoran home. This company is located in North America. 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. All of that was true until late in the 1990s when two forces combined to cause a large dent in his business. First, a new competitor from overseas entered the furniture market. Using a high-tech approach, this foreign competition provided furniture to exact specifications and did so with rock-bottom prices. Second, the sleepy communities in Sonora woke up. One of the largest retailers in the nation’s headquarters was just a few miles down the road, and its influence had expanded considerably and plenty of development, an influx of people and jobs raised the cost of labor substantially. Guillermo watched his profit margins shrink as prices fell and costs rose.

The company Guillermo’s Furniture faces one of the concepts of principle of self-interested behavior which people act in their own financial self-interest. In making good business decisions, the company needs to understand human behavior. Although there maybe individual expectations, we assume that people act in an economically rational way. That people act in their own financial self-interest. (Emery, Finnerty, & Stowe, 2007). For example, Guillermo research on his competition to see how they were handling these changes, it was clear that many of them are consolidating into larger organizations by merger or acquisition. Being independent, Guillermo does not relish the idea of being acquired by a larger competitor and then retired as the new company squeezes every peso it could out of...