Guillermo Furniture Store Analysis

Essay by MissJacksonUniversity, Master'sB+, June 2010

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Guillermo Furniture Store Analysis � PAGE \* Arabic �8�

Guillermo Furniture Store Analysis

Mollie Jackson

FIN/571 - Corporate Finance

May 24, 2010

Professor Helen Brown-Horton

Guillermo Furniture Store Analysis

The purpose of this paper is to present the analysis of different alternatives available to Guillermo Furniture, including sensitivity analysis, and to define alternative analysis (AoA). Given this information, topics of discussion are the optimal WACC and the use of multiple valuation techniques in reducing risks, as well as calculating the NPV of future cash flows for each of the alternatives discussed.

Guillermo Furniture (GF), owned by Guillermo Navallez, had been a very successful furniture manufacturer in Sonora, Mexico for many years. GF produced a variety of tables, chairs, and handcrafted products. Business was good until two competing forces combined, resulting in less sales. An overseas competitor entered the market using a high-tech approach and the local consumers became aware of a large retailer nearby, both of which provided rock-bottom prices.

As a result, GF began to see a substantial decrease in profits economic costs continued to increase.

To analyze his options, Guillermo researched the competition to learn how they were adapting to this change. In doing so, he concluded he had the following choices: (1) merge with or be acquired by a larger organization (2) convert to the high-tech solution used by the overseas competitor (3) coordinate his existing network and become a distributor for yet another competitor while marketing his patented process for coating furniture.

To determine the best option, Guillermo will use alternative analysis, which is the evaluation of different choices available for achieving an objective (, 2010). For his intended purposes, Guillermo will use the Payback Made Simple, NPV, IRR, and Payback Discounted.

Payback Made Simple

The payback period is the expected number of years required to...