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Guillermo Furniture

In: Business and Management

Submitted By smity24
Words 970
Pages 4
Guillermo Furniture Scenario ACC/543
June 4, 2012
Professor

Introduction The Guillermo Furniture Store has been run by Guillermo Navallez for years. From his home town of Sonora, Mexico he has made handcrafted premium products. Recently, a dent has been put into his business. There have been new competitors to his market with high-tech approaches allowing them to price furniture at rock bottom prices. Second, with all the advances to the surrounding area and an influx of people to the area, the labor prices have jumped substantially. These changes have caused Guillermo to take a look at his business and realize that changes need to be made. He has decided to choose from 3 different options. He could shift to the high-tech solution, become a representative for another manufacturer, or continue in the market he currently is in. Over the next couple of pages I will look into the different capital budget techniques available, explain how the techniques would help, and make a recommendation on a route Guillermo Furniture should go in to continue to thrive in the ever changing surroundings.
Capital Budget Techniques “Managers can choose from among numerous analytical techniques to help them make capital investment decisions. Each technique has advantages and disadvantages” (Edmonds, 2007). The three techniques that we will focus on are the payback method, net present value (NPV), and the internal rate of return (IRR). First there is the payback method. This is pretty simple to figure out and understand. This is how long it will take a business to recover the initial outflow for an investment.

Payback period = Net cost of investment/Annual net cash inflow

“Generally, investments with shorter payback periods are considered better. Because the payback method measures only investment recovery, not…...

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