Guillermo Furniture Store Concepts Paper Sample Name FIN/571 Corporate Finance February 14, 2010 Professor X Guillermo Furniture Store Concepts Paper Most corporations adopt finance concepts as a tool to identify, analyze and solve financial problems within the organization. Corporations use finance concepts to make investment decisions for both short and long term goals. In the scenario, Guillermo Navallez operates a large furniture manufacturing company that produces an array of tables and chairs. Presently, emerging competition and economic growth threaten to encroach on the company’s profitability margin.
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Guillermo must contemplate options that will improve efficiency and address changes in the industry as a constant endeavor to remain competitive in the market (UOP, 2011). The paper will expound on finance concepts located in the textbook, and explore the applicability to Guillermo’s Furniture. The necessity to remain cognizant of new developments in the industry is critical to Guillermo’s Furniture future success. Additionally, following the industry model to streamline processes helps to reduce production costs.
As Guillermo ponders the best strategic course of action to take next, the company displays elements of the Principle of Self-Interested Behavior. Inherently, all individuals want to secure their own financial self-interest. Unfortunately, when an individual takes action another opportunity is missed. Opportunity cost is the term for such an instance (Emery, Finnerty, & Stowe, 2009). The Principle of Two-Sided Transactions explains that every financial transaction has a minimum of two sides with one side benefiting at the expense of the other (Emery, Finnerty, & Stowe, 2009). The term for the transaction is zero-sum game.
An example of the zero-sum game is a merger or acquisition, which are options available to Guillermo to manage changes in the industry (UOP, 2010). Also, by analyzing the actions of other companies in the market Guillermo is taking advantage of the Behavioral Principle. Guillermo’s Furniture gains the advantage without consuming resources. On the other hand, the Behavioral Principle limits the ability of companies that follow the leader because the plan or model in use is only as good the source. The application of new ideas in regard to operating a business represents the Principle of Valuable Ideas.
Values stem from new products or service, hence, creating extraordinary value for an individual (Emery, Finnerty, & Stowe, 2009). Guillermo’s premium pricing of his handcrafted products creates a unique value for the company. Distinct services such as handcrafting provide the company a competitive edge over the rest. Likewise, the Principle of Comparative Advantage encourages all businesses to produce the goods and services they do best. The basis of foreign trade is the Principle of Comparative Advantage (Emery, Finnerty, & Stowe, 2009).
In this instance, all corporations in the various countries benefit. One of the most important concepts in finance is the time value of money (Gitman, 2009). Essentially, funds available on the company’s financial records today are more valuable than funds in the future because the funds available now are an investment to earn positive returns. For example, corporations view a measure of opportunity cost as the interest rate. As the text states, “The importance of this principle rests on its ability keep our thinking clear and logical” (Emery, Finnerty, & Stowe, 2009).
Furthermore, corporations must not make investment decisions without analyzing the market. Conclusion Again, all of the concepts of corporate finance are important to minimize the financial risks to which the corporation is vulnerable. However, the same concepts are instrumental to increase the profitability of the corporations. Moreover, finance concepts help managers, shareholders, and analysts to confirm the financial condition of a corporation. Thus, proper utilization of the finance concepts provides corporations with more accurate data, which is vital to analyze financial stability.
Finally, managers possess the necessary tools to make informed decisions about the strategic direction of the company. References Emery, D. R. , Finnerty, J. D. , & Stowe, J. D. (2007). Corporate Financial Management (3rd ed. ). New Jersey, NJ: Pearson-Prentice Hall. Gitman, L. J. (2009). Principles of Managerial Finance (12th ed. ). Boston, MA: Pearson Prentice Hall. University of Phoenix. (2011). Guillermo’s Furniture Store Scenario. Retrieved from University of Phoenix, Scenario, FIN571-Corporate Finance website.