Guillermo Furniture Scenario

Guillermo Furniture Store Concepts

Ilisa Patterson

Fin/571

June 18, 2012

Ken Baker

Guillermo Furniture Store Concepts

Finance, like accounting is an important factor in business. Finance has several fundamental principles which all play a key role in the execution of the corporations and businesses. Chapter 2 of the textbook Corporate Financial Management (2007) gives an in depth view of the 12 Fundamental Principles of Finance. There are three subcategories for the principles. They are the principles related to: Competition in an economic environment, the principles of Values and Ideas, and Financial Transactions. Applying the principles to the Guillermo’s Furniture Store Scenario gives a more interactive explanation of the principles.

Competition in an Economic Environment

There are four concepts related to this category. They include: Principle of Self-interested Behavior, Principle of Two-sided Transactions, The Signaling Principle, and The Behavioral Principle. Each of these is presented during the scenario.

The Principle of Self-interested Behavior simply states that human beings and corporations will act in a way to benefit their own financial self-interest. During the scenario Mr. Guillermo made it clear that he only wanted to work by himself and not merge with a larger company. His reasoning was simple. Being acquired by another firm and being forced to put most of his profit into overhead was not appealing. This is not the way he wants to run his business. The Principle of Two-sided Transactions had to do with Guillermo’s pricing methods. He felt he was able to price his items a little higher due to the quality presented. This principle has a common theme, for every purchase made there is a buyer and a seller. Someone was buying his products so he was able to keep producing and making a good living.

The Signaling Principle deals with the idea that just because an item is being offered to the public for a smaller price...