Guillermo Furniture Store: Applying Financial Concepts

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Running head: Financial Principles

The Guillermo Furniture Store: Applying Financial Concepts
Patricia Dueñas
University of Phoenix
FIN571
The Guillermo Furniture Store: Applying Financial Concepts

This paper will elaborate on key finance concepts and how they apply to Guillermo Furniture Store scenario. It will show how these principles can assist the company in the important decision-making process.

The Guillermo Furniture Store: Applying Financial Concepts
Guillermo Furniture Store is a business struggling to maintain their position. As a result of cost pressures, competition, the changing business environment and other factors, Guillermo, is faced with complex decisions that can significantly affect his company. In the world of finance there are several key principles that can help business with the decision-making process. Because of the complexity of the issues, if Guillermo applies these concepts, he will be able to make sound financial decisions.
The Principle of Self-Interested Behavior
Profit-making choices typically involve choosing between alternatives. This principle asserts that all things being equal, individuals will act according to their own financial self-interest. “Yet [finance] as a social science, is governed by the behavior of people and, generally, people act in their own self-interest to attain financial goals.” (Garger & McDonough, 2010). Typically individuals will look for opportunities that will provide financial benefit and will seek the best alternatives.
Usually individuals can choose among more than one alternative or opportunity. Because most individuals simply cannot have everything they want, choices (and compromises) must be made. To arrive at the best option, individuals must consider the next best alternative. The difference between these two or more options is the opportunity cost. Guillermo should evaluate the pros and cons of each alternative and calculate the opportunity costs. This process will identify the option that will provide the most financial opportunity to the business.
The Principle of Two-Sided Transactions
This concept is based on the foundation that each financial transaction has at least two sides. This principle is a reminder to investors that it is important to avoid self-centeredness when making financial decisions (Emery et al, 2007, p. 21). Guillermo should continue to be mindful of the overseas competition. However, he should explore every alternative including the acquisition from a larger firm or perhaps even a merger with the nation’s retailers. He must consider how each of these transactions could affect the other competitors and not lose sight that they too are acting in their own self-interest. He should also attempt to consider their positions and determine what is driving their decision-making process. By doing this, Guillermo can avoid from being egotistical and focusing solely on his needs and desires. It will allow him to keep a broader perspective and not allow pity or sorrow to influence his decisions.
The Principle of Incremental Benefits
This financial principle asserts that “the value derived from choosing a particular alternative is determined by the net extra—that is, incremental—benefit the decision provides compared with its alternative.” (Emery et al, 2007).
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