Guillermo Financial Analysis Essay

Submitted By Finhelp
Words: 334
Pages: 2

Guillermo’s Furniture Store Financial Analysis
The furniture manufacturing business has steadily grown and become more competitive. For Guillermo Navallaz to remain in business and compete with larger companies he must make some valuable business decisions to lead him to greater profits.
Through the signaling principle, Guillermo found that competition is using advanced technology to produce furniture with robotics. This would create moral hazard for Guillermo as it would take away from time with family, which Guillermo finds valuable. Additionally, it would create greater demand of his time to manage this technological advance. To purchase the equipment needed to make this transition would be costly to Guillermo. There is great risk on the return. The debt would be substantial. Guillermo would require financing. For the reasons stated it would not be in Guillermo’s best self-interest to expand through robotics.
However, to avoid acquisition Guillermo must find another alternative. A second option was presented to Guillermo. It is to become a distributor of a large manufacturing company from Norway. The opportunity cost is greater to Guillermo in this instance as it provides an aversion of risk. This trade-off will give Guillermo with an opportunity to stay competitive as it will not require Guillermo to incur greater debt. In addition, it would supply his customers with an alternative to his high-end furniture. This alternative will provide Guillermo…