Guillermo

Guillermo Alternatives

FIN/571

February 25, 2013

Guillermo Alternatives

Guillermo furniture store in Sonora Mexico has been looking at various opportunities to remain competitive in a growing market. The owner is looking to change his business plan to remain competitive with several larger competitors. These competitors have capitalized on their size; forcing changes that must be implemented to ensure Guillermo Furniture remain competitive and become more profitable. The owner Guillermo Navallez has done some research on his competition and found many are consolidating into larger companies through a merger or an acquisition. A majority of this competition comes from overseas locations such as Norway (University of Phoenix/FIN 571, 2011). Guillermo wishes to remain independent and is not looking to expand his management responsibilities; therefore, acquiring another organization is not something he is in favor of (University of Phoenix/FIN 571, 2011). To make a solid business decision Guillermo will need to review various analysis of alternatives available to him, including a sensitivity analysis.

There are two alternatives that appear to be favorable to Guillermo, focusing on his existing network and becoming more of a distributor or investing in new high-tech equipment to upgrade his current facility. By becoming more of a distributor he would be able to keep his current customers who purchase his high-end furniture while play more of a middle-man role. If he chooses to purchase some new high-tech equipment there will be extensive costs associated with that decision. According to the financial statements on the website, the high-tech option will require an income tax expense of $82,137 compared to just $17,882 for their current operations. However, the net margin would be estimated at $891,543 compared to the current net of $265,282. With the additional equipment and personnel required with the high-tech option the overhead would increase from the...