Guillermo Furniture Store Concepts 1

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Running head: Guillermo Furniture Store Concepts Paper

Guillermo Furniture Store Concepts Paper

UOP OPS571

Abstract
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In this paper, I will attempt to provide an analysis of the Guillermo furniture store

concepts paper. I will explain some finance concepts found in the readings and

how they relate to the context of the scenario (University Of Phoenix, 2009).

Guillermo Furniture Store

Guillermo furniture store is located in Sonora, Mexico. The store is owned and

operated by Guillermo Navallez (University Of Phoenix, 2009). Sonora has a good

supply of timber, and Guillermo furniture store specializes in the manufacture of tables

and chairs due to wood being relatively inexpensive. Current business trend s includes:

entering of new competitors from overseas that are using high technology for production

and can be more efficient with minimal waste. Secondly, there is rising a cost of labor in

the store’s vicinity and therefore affecting the store’s profit margin (University Of

Phoenix, 2009). The foregoing occurrences has prompted Guillermo to consider various

business alternatives, including merging with other companies, introduction of

technology into the manufacturing process, or becoming a distributor to a competitor

(University Of Phoenix, 2009).

Finance Concepts and Principles

Financial principles, financial markets, and ethics form a foundation for the

financial decisions that managers routinely make (Emery, Finnerty, & Stowe, 2007).

Some of the finance concepts and principles that apply to the Guillermo furniture store

scenario, include: The principle of self-interested behavior, with the following extensions

– opportunity costs, and the signaling principle: Actions convey information. The

principle of valuable ideas and the principle of risk return (Emery et al, 2007).
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The principle of self interested behavior states that ‘when all else is equal, all

parties to a financial transaction will choose a course of action most beneficially

advantageous to themselves’. This principle is demonstrated in the Guillermo scenario

in that Mr. Guillermo must decide which course of action is most financially beneficial to

him and the business. This principle also has a corollary, which is the principle of

opportunity cost. In choosing between alternatives, the cost of taking a specific action is

difference between the value of taking one action, and the value of the best alternative

(University Of Phoenix, 2009). Since, Mr. Guillermo must take one specific action, it

means that there will be foregone alternatives. The signaling principle is another

extension of the self-interested behavior principle (University Of Phoenix, 2009). Mr.

Guillermo actions are signals that the business is starting to show some signs financial

stress. Also, Mr. Guillermo’s decision to enter into a new line of business is an indication

of his belief in the economic potential of such a venture.

The principle of valuable ideas states that new products and services can create

value. Mr. Guillermo has new ideas about which new products and services he needs to

introduce into his business so as to create value. The next principle that is

demonstrated in the Guillermo’s scenario, is the principle of risk-return trade-offs.

Meaning that when all else is equal, people prefer higher returns and lower risk. Mr.

Guillermo is deciding to devote his business to new ventures that attracts higher returns

and low risks, therefore, this principle also applies to the above scenario.
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Conclusion

Every field of endeavor has fundamental laws, principles and tenets. I have

attempted to outline the Guillermo furniture store scenario above; and the some

financial principles that apply to the scenario of Mr. Guillermo attempt to redirect the

focus and mission of his business to achieving higher profit margin.

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References

Emery, Finnerty, Stowe. (2007). Corporate Financial Management (3rd ed.). New Jersey:

Pearson-Prentice Hall.

University of Phoenix. (2009). Course Syllabus. Retrieved: December 16, 2010. From:

http://classroom.phoenix.edu/afm212/secure/view-thread.jspa?threadID=24462772