Guillermo_Furniture

FIN/571 Corporate Finance John Kushner, professor WK 1: Guillermo Furniture Store Concept Paper June 07, 2010 Guillermo’s furniture store is owned by Guillermo Navallez and is located in Sonora, Mexico. The scenario tells that the furniture company is faced with a few issues. Relating the scenario to this week’s material, it is possible to relate some of Guillermo’s financial issues to his self interest, incremental costs and benefits, and his actions. Throughout the next paragraphs, I will discuss how each of these text related issues are also related to the Guillermo scenario. One of the issues that were noticed in the Guillermo scenario is that of self-interest behavior. According to text, self interest behavior is when the parties make decisions based on the best interest on oneself (Emery, Finnety, & Stowe, 2007). Guillermo’s idea of coordinating his existing distributor network and essentially becoming a representative for another manufacturer (University of Phoenix, 2010) would have been beneficial to him, not the competitor. Even though the competitor might have looked at this idea as a good one, the only benefit they would have received would have been the ability to distribute in North America. Guillermo’s self interest would have been satisfied by having the ability to raise the competitor’s revenue through the process of networking. Another financial issue was incremental costs and benefits. Incremental costs and benefits are occurred with particular course of action; but would not occur without that course of action (Emery, Finnety, & Stowe, 2007). If Guillermo is willing to network with competitors then it would be because of the benefit it would have on his profit. If Guillermo’s business was not going to benefit from coordinating existing distributor networks, then there would not have been a need to do business with competitors. Even though using a competitor to gain profit can be a benefit to Guillermo, he is also taking a risk. This is an example of the third issue examined from the scenario. The principle of risk-return trade off says that if you want a chance at great outcomes, there has to be a chance on having bad outcomes. Guillermo can risk money that he invests, if the competitor does not adhere to his end of the bargain. Guillermo will also be wasting money on manpower if the competitor backs out. After reading Guillermo’s scenario and the text, many financial related concepts can be applied. As mentioned in the paper, Guillermo was guilty of self interest behavior, risk-return trade-off, and incremental cost and benefit. These concepts are often experienced by managers on a common basis. The logic is to know how to approach these concepts and making sound decisions as it relates to the company and its goals. References Emery, D., Finnety, J., Stowe, J. (2007) Corporate Financial Management (3rd ed.) New Jersey, NJ: Pearson-Prentice Hall. University of Phoenix. (2010). Scenario: The Guillermo Furniture Store Scenario. Retrieved on June 07, 2010