Guillermo

Every company, especially in the state of this current economy, wants to have the monopoly in the market. Guillermo was no different and up until the late 1990’s he was doing exactly that. The quiet city of Sonora, Mexico was suddenly overwhelmed with economic development and a new competitor came into play, leaving Guillermo in a situation he hadn’t been in before. Guillermo was now faced with focusing his efforts on how to keep his company alive and using some of the common principles of finance can help assist him in with the upcoming important decisions he has to make. The behavioral principle consists of using the wealth of financial information available from thousands of other firms. Guillermo seized this opportunity to observe and use information of an overseas competitor that has become a highly automated plant. The plant’s production is a computerized laser lathe to produce exact cuts in the wood. The cost of this technology is immense and is unsettling to Guillermo. But, he can also see financially, even though it is a large investment up front, the overall change would dramatically decrease his current production costs. No longer would he have to worry about workers not showing up, or having enough trained and knowledgeable people to work. He could produce at rates that would well exceed his current timeframe. Risk-Return Trade-Off says that if you want to have a chance at some really great outcomes, you have to take a chance on having a really bad outcome. As it stands now, Guillermo has a few risky options he could take. First off, is the huge financial risk of re-structuring his whole organization to become completely automated as he observed with an overseas plant in the paragraph above. The immense cost would eventually in time pay for itself if Guillermo could establish himself in the market as a major distributor again. The second option is acting as a representative for another manufacturer and moving his company from primarily manufacturing...