Guillermo Furniture Store Concepts

Guillermo Furniture Store Concepts

FIN/571

December 3, 2012

Guillermo Furniture Store Concepts

Finance, like every other field, has principles and concepts to facilitate understanding. When looking at the Guillermo Furniture Store scenario presented in week one multiple concepts can be identified. The relationship between the financial concepts and the scenario provide real-world examples. Below these concepts are identified.

Guillermo Furniture Store was successful for many years, until two competitors put a dent in business profits. To improve business, Guillermo must reevaluate his current practices before it is too late (University of Phoenix, n.d.). Guillermo's current business standing, practices, and future plans can be explained using different financial principles. The principles I identified from the scenario include the self-interested behavior principle and opportunity cost as a result, signaling principle, the principle of valuable ideas, and the principle of risk return.

Guillermo must choose a new business practices or his business will continue to experence loss. This decision is an expression of the self-interested behavior principle. "This principle says that when all else is equal, all parties to a financial transaction will choose the course of action most financially advantageous to themselves" (Emery & Finnerty, 2007, p. 20). Opportunity cost is the result of self-interested behavior as it is the difference between one choices value and the best alternative. This is represented in the scenario because once Guillermo makes his decision on new practices he must forego other possibilities. In addition to the self-interested behavior principle, the signaling principle is observed in the scenario. People part of the Guillermo Furniture Store or know Guillermo would notice his attempts at change and assume the business is in financial stress. His sudden changes to established business practices are signals interpreted as fixes to problems in the business.

The principle of valuable ideas is the realization that a new idea could create an astonishing amount of value. Guillermo's new business practices are examples of valuable ideas. It is Guillermo's belief that the new practices, products, and services will

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