Riordan Manufacturing

Guillermo’s Furniture Store Scenario

Dr. Craig Martin

Alvin L Harris

FIN/571 Corporate Finance


The scenario begins with Guillermo having to decide if he wants to spend the money needed to upgrade his present company to remain as one of the leading furniture makers in North America. Using the concept of Competitive Economic Advantage, Guillermo did his own research on some of his competitors to see if it would be profitable for him to make the changes since he didn’t feel there was a need for him to join any of the larger companies. This is called looking at the value of economic efficiency. Also Guillermo was not willing to give up the time that he was spending with his family for the expansion of the company. This is known as risk return trade-off. There is a risk of a greater profit if Guillermo was willing to put in the extra effort needed to bring his company up to the standards needed to hold its place in the industry.

Later, Guillermo looked into how some of his competitors operated, he noticed most of them upgraded some part of their company to maintain a level of competition needed to stay ahead in their area of expertise. The companies started using robots instead of manual labor. This advancement allowed them to produced products at a faster rate of speed; also it allowed the owners to produce mass quantities of different products at the same time. This is known as the principle of comparative advantage. This is said to be the basis of our economic system, everyone doing what they do best.

During this whole process, Guillermo observed his companies accounting books to see if the changes would be cost-efficient for the company, or would he have to use other strategies to make up for the customers, time, money and effort that he is losing to his larger competitors. He also talked with some of the other companies to see what it cost them to expand in order to stay afloat in the fast paced business of producing furniture....