Guillermo Furniture Store Concepts

Guillermo Furniture Store Concepts

FIN/571 - Corporate Finance

December 19, 2011

Guillermo Furniture Store Concepts

Companies have many decisions to make in the course of day-to-day business and its entire time as a business. The decisions that face a small business can make or break the company. Guillermo’s Furniture Store is a small business experiencing the pressures of a changing environment on its operation (Phoenix, 2011). Guillermo is faced with some difficult decisions and wants to ensure he looks at them from all angles before making any decisions.

Principles of Finance Applied

As Guillermo’s is a family owned business he is acting on the Principle of Self-Interested Behavior meaning that “when all else is equal, all parties to a financial transaction will choose the course of action most financially advantageous to themselves” (Emery, Finnerty, & Stowe, 2007, p. 20). Guillermo researched his competitors, following the behavior principal, and discovered that they have either merged with another company or they have acquired another company themselves. Neither of these options is favorable by Guillermo as one would undermine the authority he is accustomed to in his company and the other would take away the valuable time he is currently able to spend with his family (Phoenix, 2011). The opportunity cost is too large so Guillermo is continuing to look at his options. Guillermo realizes that either of these scenario’s will be a two-sided transaction as each will give up something to be part of another. There is an even exchange between the two parties.

The signaling principal applies when Guillermo considers “coordinating his existing distributor network and essentially become a representative for this other manufacturer” (Phoenix, 2011, para. 5) as it reveals that Guillermo believes that the company’s value could increase by the venture (Emery, Finnerty, & Stowe, 2007, p. 23).

Guillermo patented a process of coating furniture to make it...