Guillermo Furniture Store Concept

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Date Submitted: 07/18/2010 06:51 PM

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Guillermo Furniture Store Concepts

FIN/571 – Corporate Finance

May 26, 2010

Guillermo Furniture Store

One of the concepts applied to Guillermo Furniture Store’s scenario is Hubris; a key term involved Principles of Two-Sided Transactions. Emery, Finnerty, and Stowe (2007) defined it as follows: Egotistical people can suffer from hubris, arrogance due to excessive pride and insolence toward others. They believe that they are superior to those with whom they are doing business. Whatever decisions Guillermo makes, he needs to be aware of hubris because the overseas company making inferior furniture quality may one day have a working relationship with him if his decisions take him down that path. Underestimating your competitors can lead to disaster (Emery, Finnerty, & Stowe, 2007).

Guillermo should be interested in another concept: opportunity costs. Emery, Finnerty, & Stowe said an opportunity cost is the difference between the value of one action and the value of the best alternative. Guillermo evaluated different possibilities finding the opportunity costs associated with each decision that he could make regarding distributing, making the furniture coating and not changing the current processes, having under consideration the relative importance of each decision. If the opportunity cost is small, then the cost of an incorrect choice is small. If the opportunity cost is large, the cost of not making the best choice is large (Emery, Finnerty, & Stowe, 2007).

Behavioral Principle is another concept found in Guillermo’s scenario. What other companies including the new overseas company are doing that may be different from Guillermo Furniture should be a benefit. The policy changes that are made by other firms in the same industry can provide useful guidance. This form of behavior is sometimes referred to as the industry effect (Emery, Finnerty, & Stowe, 2007). Studying the competition can help Guillermo make good decisions for...