Company Analysis Guillernmo
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- Date Submitted: 05/13/2013 06:01 PM
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Guillermo Furniture
Corporate Finance 517
May, 2013
Guillermo Navallez has made handcrafted furniture for years in Sonora, Mexico.
Recently Guillermo watched his profit margins shrink as prices fell and costs rose. This status change was caused by the influx of competitors and an increase in development into the Sonora area (University of Phoenix). The options for continued success must be determined for this independent furniture manufacturer. Analysis of alternatives available to Guillermo will be implemented.
According to Investopedia, capital budgeting is defined as the process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Guillermo has spent time analyzing the new competitors process and procedures.
There are five steps of the capital budgeting process which are further classified into:
1. Maintenance projects
2. Cost-saving/revenue-enhancing projects
3. Capacity expansions in current businesses
4. New products and new businesses
(Emery, Finnerty & Stowe, 2007)
The company must recognize value of options to expand. Postpone or abandon a capital project. It must recognize signaling, which are the products and actions of competitors.
The competition is using a high-tech approach that uses a computer controlled laser lathe to produce exact cuts in the wood. Highly automated, the plant uses very little labor as robots even perform the precise movement and assembly functions. The cost of the technology is immense, as is the reduction in the labor needed for production. In addition, the production can move between products quickly, and it runs on a 24-hour basis, as the shift-differentials are more than offset by the reduction in labor....
Corporate Finance 517
May, 2013
Guillermo Navallez has made handcrafted furniture for years in Sonora, Mexico.
Recently Guillermo watched his profit margins shrink as prices fell and costs rose. This status change was caused by the influx of competitors and an increase in development into the Sonora area (University of Phoenix). The options for continued success must be determined for this independent furniture manufacturer. Analysis of alternatives available to Guillermo will be implemented.
According to Investopedia, capital budgeting is defined as the process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Guillermo has spent time analyzing the new competitors process and procedures.
There are five steps of the capital budgeting process which are further classified into:
1. Maintenance projects
2. Cost-saving/revenue-enhancing projects
3. Capacity expansions in current businesses
4. New products and new businesses
(Emery, Finnerty & Stowe, 2007)
The company must recognize value of options to expand. Postpone or abandon a capital project. It must recognize signaling, which are the products and actions of competitors.
The competition is using a high-tech approach that uses a computer controlled laser lathe to produce exact cuts in the wood. Highly automated, the plant uses very little labor as robots even perform the precise movement and assembly functions. The cost of the technology is immense, as is the reduction in the labor needed for production. In addition, the production can move between products quickly, and it runs on a 24-hour basis, as the shift-differentials are more than offset by the reduction in labor....