Guillermo_Finance_Concepts

Guillermo’s Furniture Store Scenario Introduction Guillermo is a small business man who is trying to research all of his financial options in order to stay competitive in the furniture making world. With the entry of the larger competitor with the high technology technique Guillermo is looking at his options in order to make a decision that will best suit him so that it will keep his overhead costs down and still keep him with a decent profit. Each principle explained below relates to the context of Guillermo’s Scenario. Signaling Principle The Signaling Principle is an extension of the Principle of Self-Interested Behavior (Emery, Finnerty & Stowe, 2007). It’s “a firms decision to enter a new line of business may reveal something about the firm’s position and its belief in the venture’s potential” (Emery, Finnerty & Stowe, 2007). This relates to Guillermo’s Furniture business in that he is looking into entering a venture with the company in Norway who wants to enter the North American market. In entering into this venture it could possibly better his position in the market while still making him a profit. Behavioral Principle “The Behavioral Principle says, in essence, “let’s try to use such information” (Emery, Finnerty & Stowe, 2007). Basically states “When all else fails, look at what others are doing for guidance” (Emery, Finnerty & Stowe, 2007). Guillermo says the changes in his industry and looked at his competitors to get advice on what they were doing in order to make his decision. He researches their high tech solutions, production, and costs in order to decide the best path for him to take. He is independent and isn’t looking forward to merging with a larger company so he is researching his options in order to avoid this. Principles of Valuable Ideas The Principles of Valuable Ideas says “you…might find a way to get rich! New products or service can create value, so if you have a new idea, you might then transform it into extraordinary positive value for yourself” ((Emery, Finnerty & Stowe, 2007). Guillermo is researching the new technology computer laser that the larger company uses in order to decide if this will be beneficial for him to make the huge investment. Principle of Comparative Advantage The Principle of Comparative Advantage is the basic idea that “expertise can create value” (Emery, Finnerty & Stowe, 2007). Basically “if everyone does what they do best, we will have the most qualified people doing each type of work. This creates economic efficiency…” (Emery, Finnerty & Stowe, 2007). It is the “basis for foreign trade. Each country produces the goods and service that it can make most efficiently” (Emery, Finnerty & Stowe, 2007). Guillermo’s Furniture uses this to their advantage in that his area has a great selection of timber to make fine furniture. He uses his skills to make furniture to the best of his ability for maximum profit. Entering into a venture with the company from Norway would put him at a better advantage to continue this venture. Principle of Incremental Benefits The principles of incremental benefits are the “value derived from choosing a particular alternative determined by the net extra - that is incremental” (Emery, Finnerty & Stowe, 2007). “The incremental costs and benefits are those that would occur with a particular course of action but would not occur without that course of action” (Emery, Finnerty & Stowe, 2007). Guillermo’s actions will determine his incremental benefits and costs that will be associated with merging with the company from Norway. However he will not be able to make any incremental benefit unless he makes the decision to merge or not. Conclusion Guillermo’s Furniture has done a lot of research on his competitors and must now make a decision that will best suit his company’s future. This decision can increase his profits while keeping his costs down. Based on his research it would be best suited for Guillermo’s to merge with the company in Norway and to move from primary manufacturing to primary distribution using their contacts in North America. This will allow him to stay independent while still making a profit. References Emery, D, Finnerty, J, & Stowe, J (2007).Corporate Financial Management (3rd edition). New Jersey: Pearson-Prentice Hall.