Capital Budget Recommendation

The world is at a constant move, always growing, and always expanding. Changes of the economy are a crucial part in running any business. With the world at a constant, business owners should try to continue to think of the next move they can take big, or small. Guillermo Furniture is one company like many that forgot about growth and now need to consider different options. Guillermo Navaliez should take into consideration the Present Value (PV), Net Present Value (NPV), and the Internal Rate of Return (IRR) to see the best options that are available for the his company’s future.

Guillermo Navaliez is the creator of a heartfelt furniture company. He found his passion making variety of tables and chairs that often produced by his company using good supply of timber from the local area Sonora, Mexico. Then in the late 1990s the economy hit a growth sprit. As the land expanded with tourist for it beautiful view, inexpensive housing an airport was built in addition to new companies moving in using new technology. With the expansion came more complications for Guillermo’s Furniture Company. He was using hands to create his product which is positive for uniqueness but not for competition. When compared to the company that recently moved in to the area that uses computer controlled laser lathe to produce exact cuts in each piece of wood, handcrafting seemed to be more cost-effective.

The Present Value (PV) is, “an Excel spreadsheet offers a variety of financial functions, one of which converts a future value annuity into its present value equivalent. This present value function uses the syntax PV(rate, nper, pmt) in which rate is the desired rate of return, nper is the number of periods, and pmt is the amount of the payment (periodic cash inflow)” (Edmond, et. al., 2007, p. 1153). The companies PV mid-grade production is currently at $2,585.00 compared to the Hi-Tech at $3,878.00, with a $1,293 production difference they are not looking very good. The price...