Guillermo's Furniture Store
University of Phoenix
Corporate Finance 571
May 12, 2009
Guillermo's Furniture Store Scenario
This paper will look at the different alternatives that are available to the management of Guillermo's Furniture Store. The paper will include three different alternatives that Guillermo's could use, and what the optimal Weighted Average Cost of Capital (WACC) of each option will be presented along with techniques for reducing risks.
Guillermo's Furniture store is facing stiff foreign competition from foreign competitors which that has put them in the position of rethinking how maintain a business structure that would allow them to continue to compete in a global market. Guillermo has looked at a number of alternatives and this paper will explore those alternatives answering the following questions: What can be done to change the way Guillermo's presently conduct business and maintain a cost benefit to the company? Can Guillermo increase the profits and production while decreasing the costs to labor? Can Guillermo's be restructured to maximize costs without losing a competitive edge? This paper will look at the questions and discuss what can be accomplished with minimal risk and high return value.
Weighted Average Cost of Capital
What would be the Weighted Average cost of Capital in the first scenario? Guillermo's current assets consist of cash, accounts receivables, inventory and pre-paid insurance for a hypothetical amount of 400 million. The amount of debt the company is carrying is 300 million.
If the firm cannot realize any future growth in revenues, then the value of the firm has decreased. If Guillermo is trying to raise cash for financing, the financial sheet that would be presented to potential investors must show that the company is earning enough...