Guillermo’s furniture scenario
Nicole Scales
Fin571
November, 2011
Susanne Elliott, MBA
GUILLERMO’S FURNITURE SCENARIO / 3This paper will cover the finance concepts (The concept of the competitive economic advantage, the concept of the value and economic efficiency, and the concept of observing financial transactions. The paper will compare the scenario and concepts to how it relates to the Guillermo’s furniture store scenario.
Guillermo’s furniture scenario
According to University of Phoenix Guillermo’s Furniture Store Scenario (2010), Guillermo’s faced new competitors that entered in his business market of manufacturing furniture such as chairs and tables. With one of the new competitors known to be one of the largest retailers in the nation just blocks away and other new business opening in and around Guillermo’s furniture store caused the rise in labor coast and profit drop for his business.
Because of this Guillermo’s had to go into to different business ventures such as possibly consolidating into a larger organization by merger or acquisition. Guillermo’s also had a possibility of becoming a representative for other manufacturers, which would allow him to retain his work and move his company from a primarily manufacturing to primarily to distribution Company.
Concepts and how they relate to the scenario
In reviewing week one chapter two and three some of the financial concepts that relates to Guillermo’s Furniture recent financial issue are opportunity cost, moral hazard, zero gun game, and sunk cost.
According to Emery, Finnerty, and Stowe(2007) an opportunity cost provides an indication of the relative importance of a decision. In the Guillermo’s scenario Guillermo has a decision to purchase computer controlled laser lathe or to change the company from a primarily manufacturing to a primarily distribution company. The decision Guillermo makes will set the tone for the future of the company
According to Emery, Finnerty, and Stowe(2007), The Principle of Self-Interested Behavior states that when all is equivalent, all parties evolved in a financial transaction will choose the course of action most financially beneficial to themselves. Guillermo’s key focuses determine the best method that would be the most beneficial to his company.
According to Emery, Finnerty, and Stowe(2007) competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry. According to University of Phoenix Guillermo’s Furniture Store Scenario (2010), Scenario Guillermo furniture has a good supply of timber, which allowed him to make a verity of tables and chairs. Guillermo also had an existing distributor network, which gave him the upper hand over his competitors. According to University of Phoenix Guillermo’s Furniture Store Scenario (2010), Guillermo has another advantage, which is creating a coating for his furniture. Based on the scenario there is market for the flame retardant but not as much a market for the finished coating.
Economic efficiency is only relevant when the quality of goods produced is unchanged. Economic efficiency occurs when the cost of producing a given output is as low as possible (Emery, Finnerty, & Stowe, 2007). Based on the scenario an example of economic efficiency would be the opportunity for Guillermo to move their production utilizes a computer controlled laser to product exact cuts in the wood needed for production. This change can cause a reduction in labor needed for production and decrease his production cost.
According to Emery, Finnerty, and Stowe(2007) financial transactions are transactions in financial assets and liabilities between institutional units, and between them, and the rest of the world. Based on the scenario Guillermo did some research and determine that some of the competitions were consolidating into larger organizations by merger or acquisition. According to chapter 2 most financial transactions are zero-sum games. A zero-sum game is a situation in which one player can gain only at the expense of another player. In this type of example Guillermo’s was considering to become a representative for manufacturer, which would be a gain for Guillermo at his competitor expenses because he would be a distributor for his competitors. This can also expand his network base.
In conclusion the concepts in chapter 2 can relate to the scenario in different ways and explains the finical options Guillermo will have to make to stay a lead competitor in his industry. Guillermo’s has several advantages over his competitors and different opportunities he can take to ensure the success of his organization
Reference:
Emery, d., Finnerty, j. d., & Stowe, j. d. (2007). Corporate Financial Management, (3rd ed.). Retrieved from https://portal.phoenix.edu/classroom/coursematerials/fin_571/20111108