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Finance 571

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Guillermo Furniture Store Financial Analysis Guillermo needs to implement a new business strategy to remain competitive in business and with foreign manufacturers. Guillermo furniture business is viable because it meets the criteria of a successful business; new competition and diversification of his business after the competition entered the market. This paper will analyze three possible alternatives for Guillermo to remain competitive in business, implement a sensitive analysis to evaluate possible alternatives, determine the optimal weighted average cost of capital, discuss the use of multiple valuation in reducing risks, and calculate the net present value of future cash flows for each alternative.
Analysis of Different Alternatives The company faces three possible alternatives to remain in business. The First alternative would be to distribute the furniture he sells at rock bottom prices against his new competition, while developing and marketing the patented process for creating a coating for his furniture. The invention of the flame retardant spray could take off if he attempts to market it globally; the distribution side can keep steady income coming in for him while he tries to make bigger profits of his “invention.” Guillermo would need to initiate the patent process to creating a coating for his furniture. Current, IRR is 6.9% where as the cost of capital is 9.17%, Second alternative is the Hi-Tech system that could decrease labor by using robots instead of live operators to perform the precise movement to furniture assembly at a faster and smoothly operation on a 24 hour shift to offset by reducing the cost in labor. Cost of capital is a required return on Guillermo existing operations, which the current cost of capital of $195,564 of net income before taxes can replicate the total risk of the entire business existing assets, but the new

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