Guillermo Furniture Scenario
Financial principles, financial markets and business ethics form the foundation for financial decisions that managers routinely make. This paper shall focus on a discussion of business ethics and several of the financial concepts/principles as outlined in the text as they relate the Guillermo Furniture scenario. Those principles include:
1. Self-interest guides financial decision-making.
2. All transactions have at least two sides, with each party considering their self-interest.
3. Incremental costs and benefits are the basis for choices among alternatives.
4. Investors are risk averse and therefore face a risk-return trade-off.
5. Developing expertise can create value.
6. Diversification can reduce risk.
7. Options are valuable because they contain rights, but not obligations.
8. Market prices in an efficient market reflect publicly available information.
9. Actions can be valuable signals.
10. Look to what others are doing for guidance.
11. Extraordinary returns are possible with new ideas.
Guillermo, owner of Guillermo’s Furniture Store is faced with some serious challenges from an increasingly competitive market place. Guillermo will have to make critical Capitol Budgeting decisions concerning investments in long-term assets for his company. The decisions that Guillermo makes will have a far reaching impact on the direction his company will take and its profitability. The strategic nature of these choices can be seen in the time horizons of capital assets that may not produce returns for decades or even generations. (Text) In Guillermo’s case the capital decisions he makes will have to produce results much quicker that that but the future affect that his decisions have will dictate, the success or failure of Guillermo’s business. His future decisions will also be guided by the results of the choices he makes today.
Many of the advantages that helped Guillermo...