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Fin/571 Week 1 Assignment Essay

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Financial Principals to Guide Guillermo
Your Name
October 30th, 2012

Financial Principals to Guide Guillermo
Guillermo Navallez owns a company that manufactures handcrafted furniture. The location and economic area facilitated operating a successful furniture manufacturing business. Because of competition and a changing local economy, Guillermo’s company stopped enjoying profits it once had.   Guillermo must make some decisions that will affect his financial future. There are several finance concepts that can be applied to Guillermo Navallez’ dilemma pertaining to his furniture company.
Self-Interested Behavior Principle
This principle states that when making financial decisions, the decision maker is most likely to choose the option that benefits them the most personally. This concept applies to Guillermo’s scenario because he is trying to determine how to move forward with his business in a way that will benefit him the most.   His choices include an acquisition of his business by a bigger company, acquiring a smaller company, changing the method of production from human labor to automation and becoming a distributor for a foreign manufacturing company.
Behavioral Principle
The Behavioral Principle also can be found in Guillermo’s scenario. The Behavioral Principle suggests that when making decisions, it could be helpful to study the behavior of others. There are at least two times when using this approach could be appropriate, “the case when there is a limit to our understanding and the case when its use is more cost-effective than the most accurate method” (Emery, Finnerty & Stowe, 2007). For Guillermo, he studied the decisions that competitors have used and could decide if one those methods would work for his company. He should also know the outcomes of the decisions these companies made in order to guide him. If he follows the behavior of a competitor, he should know if the decision profits the company.
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