Fin_571_Week_4_Guillmero_Furniture

Running Head: GUILLERMO’S FURNITURE SCENARIO Guillermo’s Furniture Scenario Catherine Rodriguez FIN 571 March 15, 2010 University of Phoenix Julio Jimenez Guillermo’s Furniture Scenario Located in Beautiful Senora, Mexico, a popular vacation spot, Guillermo Furniture manufacturing company has been a the largest company in the area until the 1990’s, when new competitors came and set up furniture making businesses as well. Although a well established company and reliable work, Guillermo could not keep up the new competitors and the new technologies that they possessed and the low prices that came along as a benefit. With lower prices available to the consumers, Guillermo must look at the different alternatives that will benefit the company. Moving forward and being able to keep up with the competition means that he must decided whether upgrading or continue to give quality one of a kind handmade furniture to consumers, that he has been doing for years. The Options With years of much welcomed success for Guillermo due to the location of the his Furniture Company and with labor being relatively inexpensive, Guillermo had little to worry about until the competition began to set root in the same vicinity. With the influx of big furniture stores Guillermo has decided to make changes in the way the he runs his company. There are three different ways the he is able to accomplish this. The first is to continue to operate as he has before, second is to invest in the high tech equipment that will allow for faster production as well as production of new products, and the third is to become a distributor of another’s product. For years Guillermo has built his business on his craftsmanship and the quality of his products. Priced towards higher end products, he did well with producing various furniture products using the different woods available from that region as well as enjoyed cheap labor that came from the surrounding area. Although production is not equal to that of hi-tech machinery the quality and workmanship shows through. He also is able to provide a finish that he himself has patented. By choosing to continue to do business as usual he will be able to maintain the same standards that he for many years. Guillermo isn’t looking to merge and there is the competition from over seas that has entered the furniture market (UOP, 2010). Guillermo’s management has done some research and found that their competitors are using a high tech approach providing furniture to the exact specifications at very low prices (UOP, 2010). There is a high cost to the technology that the competitors posses. The technology will be able to make precision cuts, increase productivity, and reduce cost of labor by reducing the labor force. By becoming a distributor for a furniture company based out of Norway, Guillermo will be able to compete with the other furniture companies. Currently this company has no stores in North America and isnot looking to open outlets but instead find chain distributors for their products. This option would allow Guillermo to keep up with the competition by being able to offer low cost products that are produced with the same quality and precisionas the competitor. In addition to being able to be a distributor, Guillermo will still be able to produce and offer his own handcrafted quality furniture and specialty finish. Using a comparison statement to the current operations and what the impact of continuing to do business as Guillermo is now doing. Production of course would remain the same as would materials. Labor cost would be on the other hand would remain lower than that of the other two options as would the actual overhead. By choosing this option Guillermo would be able to continue to do his handcrafted furniture without selling out, using hi-tech machines, or become a distributor. Using a comparison statement to the current operations and what the impact of the new technologies would be, it showed that production could be increased by 50% without any material cost increase. Further more labor would be directly impacted because the technical skill of the employees will have to increase. By choosing the Hi-tech option would help reduce prices by at least 10% due to the increase in productivity. Recommendation and Growth By allowing the company to make the move to a hi-tech facility will allow for growth and will allow for future growth as technologies continue to advance. Even after cost of obtaining the required equipment and machinery Guillermo will be able to see a significant increase in assets. This will put Guillermo at a competitive edge with the other companies. This option is a significant advantage over the other options that Guillermo’s company is facing. These options would require additional capital investment and strategic planning with the business ventures. Unlike the hi-tech option, the other business ventures would need to address various broker options and relationships, brand name, and an in-depth risk analysis with each broker option. When looking at the three options available for Guillermo, one can see that with each year the NPV on the cash flows continues to be positive. As with any investment the investors are wanting to see if the money that they are willing to invest will continue to grow. By calculating the net present value the decision should be able to be made. Multiple Valuation Techniques in Reducing Risks Since there is a risk in every decision a company makes, the bottom line is the company must determine how much risk it is prepared to take and what methods will be implemented to keep those risks at a minimum. Guillermo must establish a 'comfort zone' for his business and try to stay within it. Environmental risks have the potential break a company is certain issues are being ignored. It is a good business decision to have environmental audit completed well in advance of any issues arising that could harm the budget as well as the reputation. With adding new machinery Guillermo should beware of laws and regulations before investing to much. The second is the discounted flow method, and the third is Price-earnings ration (P/E) is simply the price of a company's share of common stock in the public market divided by its earnings per share. By multiplying this P/E multiple by the net income, the value for the business could be determined. Conclusion Works Citied University of Phoenix (2010). Guillermo Furniture Store Scenario. Fin/571 simulation.