Guillermo Furniture Store Analysis Paper Aimee R. Walrath FIN/571 August 6th, 2012 Prof. Mohammad Sharifzadeh GUILLERMO FURNITURE STORE ANALYSIS PAPER In the town of Sonora, Mexico a popular vacation spot is a large furniture manufacturing facility, founded by Guillermo Navallez. With an abundance of inexpensive hardworking labor available and a variety of timber Guillermo makes fine handcrafted furniture. The combination of these two factors also kept the furniture affordable. The business had been doing excellent up until the late 1990’s when other competitors entered the marketplace. These competitors offered similar products utilizing more high tech processes reducing the price they were able to charge.
The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyse the profitability of an investment or project. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. NPV or net present value in capital budgeting is defined as the difference between outlay and present value of expected cash inflows. A positive NPV value is acceptable where as an NPV of zero yields the internal rate of return.
There are many ways to measure the price elasticity of demand however the easiest way to do it is by comparing the change in price to the total revenue earned by the producer, known as the total outlay method. The total outlay is found by multiplying the price of the product by the quantity demanded at that price. If the total outlay moves in the same direction as the price change, demand is relatively inelastic. Alternatively, if the total outlay moves in the opposite direction to the price change, demand is relatively elastic. Also, if the total outlay is the same following the price change than the demand is unit elastic.
Guillermo Furniture Store Concepts NAME Fin/571 Corporate Finance DATE PROFESSOR Guillermo Furniture Store Concepts The Guillermo furniture store is located in Sonora, Mexico which is known as an attractive vacation spot. Sonora Mexico is also considered a huge furniture manufacturing location in North America. The Guillermo furniture store scenario posed a few issues within the furniture market. Through certain finance concepts, Guillermo was able to make some decisions that will increase business sales. Even though Sonora, Mexico had a considerable supply of timber used to make various chairs and tables by Guillermo’s company and labor costs were low, Guillermo experienced a down-turn in the late 1990’s.
Perhaps the greatest benefit of offshoring is the cost advantage it produces, which directly affects the company's bottom line. In tight fiscal situations, any savings in operating costs will contribute toward the company's sustenance and growth. Companies in recession segments sustain themselves and grow through innovation. Lower operating costs means they have more money to invest in innovation, resulting in a stabilized domestic workforce. In the service sectors, the cost saving from offshoring enables companies to create new service lines, many of which had been deferred for want of investment.
Guillermo Furniture Store Scenario Guillermo Furniture Store Scenario is the individual assignment for this week. As part of the assignment we need to explain he financial concepts found in the readings and how they are related to the context found in the furniture store scenario (UOPX, 2012). The furniture store owned by Guillermo Narvallez is located in Sonora, Mexico. Guillermo choose this area because of the good supply of lumber available for the chairs and tables created by the company. The manual labor the company does is basically inexpensively in this region, and because of this the furniture store can offer their products at the best price.
Are share repurchases good or bad? The answer, as might be expected, is a bit gray. Assuming the company has a certain amount of cash they wish to return to shareholders, the two ways they can do it are through dividends and share repurchases. Share repurchases are typically more flexible for the company, while dividends are more flexible for the shareholder. The basic answer is that share repurchases are great when the share price is undervalued, and not-so-great when the share price is overvalued.
IRR represents the discount rate at which the present value of the expected cash inflows from a project equals the present value of the expected cash outflows. Internal rate of return is used to evaluate the attractiveness of a project or investment. If the IRR of a new project exceeds a company’s required rate of return, that project is desirable. If IRR falls below the required rate of return, the project should be rejected. It is to be noted that NPV uses an absolute amount IRR is interpreted in terms of ‘Rate’.
From the moment Tom was in charge of the company he focused on increasing the companies profit margin. This was not an easy job being that the company’s main products are considered commodities. Aside from that the partyware industry is constantly gaining new competitors that capture the market with similar products at lower prices. Tom Rose is currently faced with two marketing strategies that could be considered industry game changers and greatly impact his business. The original strategy is the launch of a brand line for Rose Partyware that will showcase a new printing technology that will improve quality and reduce costs.
To change the price structure Kamprad designed sleek functional furniture which was able to be produced on machines and thus cheap to assemble. Furthermore, he utilized factories and workers in Poland which offered a 40% savings over production within Sweden. This pricing strategy allowed nearly unhindered growth for the furniture giant within countries of what I would consider the European Union. As growth continued, IKEA took advantage of the fragmented furniture industry within the Western European furniture markets. Instead