Gullermo Furniture

Guillermos Furniture Scenario Part deuce Brian Reckeweg FIN571 April 19, 2012 Sheri Wang Guillermos Furniture Scenario Part Two The starting line role of Guillermos Furniture scenario was to explain the funding concepts in calendar week one and how they relate to Guillermos Furniture Store (Emery, Finnerty, & vitamin A; Stowe, 2007). This week an in-depth analysis allow for try and explain the different alternative available to Guillermo. that more than, the optimal heavy average hail of chief city is blueprintted along with the use of multiple military rating techniques in reducing risk. before long Guillermo has different alternatives available. First, Guillermo advise outgrowth the electric current engine room to a more up-to-date applied science to meet the demand and competition in the market from different(a) companies, chief(prenominal)ly the equal type of technology used by Guillermos briny competitor. Finally, Guillermo can use the fire large- minded lacquer to plant his store a competitive return over his competitors. both(prenominal) options will cost his company more capital. Using the weighted average cost of capital (WACC) Guillermo can determine which of these line ventures are profitable to undertake. Guillermo has two main ways of ski tow the capital needed to take on these business ventures.

The first of which is to borrow money from the bank or what the WACC formula defines as debt. The second is to trance money from investors or what the WACC formula defines as equity. Both of these options will cost Guillermo something. The formula is WACC= D/V (Rd) (1-Tc) + E/V (Re). Lets say that presently Guillermos debt to equity ratio is 50/50. What this means is t! hat fractional of the companys debt is borrowed from the bank and the other half is from outside(a) investors and the company has a tax pasture of 25%. Currently Guillermo pays five percent on debt and ball club percent on equity. So the current WACC= 0.50 (0.05) (1-0.25) + 0.50 (0.09) = 6.37%. For Guillermo to invest in rising technology, he takes an additional loan of 200,000 from the bank...If you want to get a full essay, order it on our website: OrderEssay.net

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