Guillermo_Furniture_Store_Concepts

Guillermo Furniture Store Concepts Guillermo Furniture Store (GFS) can use the finance concepts to help in the company decision-making process. This paper will show how the 12 finance concepts can relate to GFS and how they can use them in their decision making. After applying these concepts Guillermo Navallez should be able to make some decisions on the future of GFS. The first concept is the Principle of Self Interested Behavior. This principle says that people tend to act or do what is best for them. Guillermo Navallez will do what is best for GFS and he based on this concept. This concept relates to GFS because Mr. Navallez is not expanding or merging with another organization because it will take time away from his family and increase his responsibilities. This is an example of an opportunity cost because by not expanding the company could be detrimental to the future of the company because of his own self interest. The second concept is the Principle of Two Sided Transactions. This concept says that there are at least two sides to each transaction. An example of this concept is GFS becoming a distributor for his second competitor. This transaction has two sides and both sides would benefit. GFS would benefit by changing from a primarily manufacturer to a distributor and the competition would have the distributing company they needed. The third concept is the Signaling Principle, which says that actions convey information and the fourth concept is the Behavior Principle, which looks at the industry effect or what others firms are doing in the industry. An example of the third and fourth concept would be Mr. Navallez inquiring about the highly automated systems of his competitors because Mr. Navallez behavior could signal to the employees that the company could be switching to an automated system, which could lead to layoffs. The fifth concept is the Principle of Valuable Ideas, and the sixth concept is the Principle of Comparative Advantage could go hand in hand. The fifth concept occurs when someone invent or patent an idea and make money. The sixth concept says that someone’s expertise can make him or her money. These two concepts relate to GFS because their patented process for creating a coating for furniture means that their expertise in this process is very valuable and could be profitable to GFS. The seventh concept is the Options Principle. This concept says that someone’s options are extremely valuable. This concept could relate to GFS by the put option on its patented process for creating a coating for furniture. The eighth concept is the Principle of Incremental Benefits. This concept relates to GFS because Mr. Navallez has to determine if the incremental cost and benefit of GFS switching to a highly automated system outweighs the benefits of not switching. The ninth concept is the Principle of Risk Return Trade Off. This concept relates to GFS because Mr. Navallez has to determine the risk return trade off from switching GFS from a manufacturing company to a distributing company. The tenth concept is the Principle of Diversification. This concept relates to GFS because they can be a primarily distributing company but still market high end custom furniture, flame retardant, and finished coating. That way all their eggs are not in one basket and he or she has diversified the company. The eleventh concept is the Principle of Capital Market Efficiency. This concept involves the return associated with simply purchasing part of an opportunity that has become known to everyone (Emery, Finnerty, & Stowe, 2007). An example of this concept would be taking advantage of the market for finished coating because it is known in the marketplace. The last concept is the Time Value of Money Principle. The concept of this principle is how much it costs to rent money. This concept relates to GFS by figuring out how long it would take for GFS to arrive at a return on its investment of converting to a highly automated system or how much furniture they have to sell to arrive at a return on their investment. In conclusion, these 12 finance concepts can help a company to make an informed decision on the direction of their company. GFS could use the finance concepts to assist in their decision making. These concepts would assist Mr. Navallez on making decision on the future of GFS. References Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate Financial Management (3rd ed.). : Prentice Hall.