Capital Budget Recommendation Essay

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Capital Budget Recommendation Guillermo Furniture Company located in Sonora Mexico has as run a successful business until the late 1990’s. Within the last decade, Guillermo has encountered the effects of globalization, and has seen significant declines do to automation by competitors causing reduced profit margins and raised production costs. Therefore, Guillermo is faced with several decisions which could substantially change the way the business operates. As a newly hired accountant by the Guillermo Furniture Company an analysis and examination of capital budget techniques will be presented to help Guillermo determine which course of action should take. Business Alternatives There are several alternatives available to Guillermo such as merging with a larger company, which some competitors have already done. A second alternative is to go with a hi-tech approach to producing furniture. This hi-tech approach uses a computer controlled laser lathe, which makes precision cuts and is very fast along with robots that assemble the products. These hi-tech machines have allowed competitors to produce low-cost furniture and make a substantial profit in compared to manual labor production. A third alternative Guillermo in consideration is teaming up with a competitor that does not currently have a retail channel in North America and promote the use of a patented finish system for the furniture. Guillermo could use their established distributor network that is already in place and represent the competitor here in North America while maintaining a smaller scale business offering high-end products. The third alternative is the least feasible of the three because it is strictly just a thought of Guillermo’s at this point and may not even be a viable option whereas the other two alternatives are. Capital Budget Techniques In order for Guillermo to make a sound decision about

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