FIN 571 Week 4 Guillermo Furniture Store Analysis

FIN 571 Week 4 Guillermo Furniture Store Analysis

Guillermo Furniture Store Scenario

Guillermo Furniture Store is a furniture manufacturing store located in North America (Guillermo’s Furniture Store, 2012). As inexpensive as the hand crafted furniture and patent furniture coating is known for competitors from overseas using high-tech amenities to produce exact furniture with low process for consumers is a threat to Guillermo Furniture Store. In addition, Guillermo lack of interest into merging into a larger organization and acquisition may lead to ongoing sunk and overhead costs (Guillermo’s Furniture Store, 2012). The focus for this analysis is of different alternatives available to Guillermo is (no change, high tech, distributer, and furniture finish) and to determine the optimal weighted average cost of capital and discuss the use of multiple valuation techniques in reducing risks. Further the calculation of net present value of future cash flows for each of the alternatives are assumptions regarding some of the variables to provide alternatives to the scenario. The different types of capital budgeting techniques most clear and create a substantial analysis include Net Present Value (NPV) and Internal Rate Of Return (IRR).

Net Present value and Internal Rate of Return

specific period (the last period being ‘n’). IRR, denoted by ‘r’ is to be calculated by employing trial and error method” (para 3.).

·         /(1 + i_rr)² + .... + F_n /(1 + i_rr)ⁿ = 0 (2)

Formula obtained from (Engineering Tool Box, 2012).

Working Capital

Scenario One/High-Tech Solution and No Change

Scenario Two/Distribution

Scenario Three/Furnish Finish

Conclusion

            Guillermo Furniture Store alternatives include no change, high tech, distributer, and furniture finish. The business can choose to create their project into up to date, high tech and broker prospects. Guillermo’s furniture store should select the best alternatives to create a competitive advantage to the business while still maintaining financial responsibilities. The business is responsible for using working capital techniques to keep the business in a productive yet responsible manner.

Reference

Engineering Tool Box (2012) Internal rate of Return Retrieved http://www.engineeringtoolbox.com/internal-rate-of-return-irr-d_1235.html

Guillermo Furniture Store Scenario/Data (2012) Guillermo Retrieved from UOP https://portal.phoenix.edu/classroom/coursematerials/fin_571/20120501/

Penton Media (2012) What is Net Present Value? Retrieved http://nationalhogfarmer.com/genetics-reproduction/evaluation-selection/0109-npv-anaylsis-process

Think And Done (2007-2012) Net Present Value Retrieved http://finance.thinkanddone.com/npv.html

VisitAsk (2004-2012) Internal rate of Returns Calculations Retrieved http://www.visitask.com/internal-rate-of-return.asp