Rodolfo Furniture Scenario

Rodolfo's Furniture Store Scenario provides the expedient case study for studying the concept of financial principle in the competitive economic environment. The current paper discusses the approach of financial management with correct application of ideas to create value and economic efficiency through analysis of financial transactions to establish the position of Rodolfo in market.
CostRelationships and Behaviors to Supplement Decision-Making Prerogatives for the Manager
Financial principles, financial markets, and business ethics form a foundation for the financial decisions that managers routinely make. Rodolfo’s case study shows that the arrival of new competitor from oversees have put unexpected challenges on the financial condition of the company. The principles of financedescribe typical behavior in financial transactions and provide guidance for decision making in the case of Rodolfo. Competitors have advantage of applying the new technology to produce customized product with precise measurement to meet the demands of customer. Rodolfo is also seeing the issue of rise in labor cost due to economic prosperity of the city. Since financial self-interest guidesrational decision making, Rodolfo has to reestablish its position to meet the challenges from foreign competitors in Puerto Rico. Many financial decisions must consider the time value of money. The availability of local labor on cheap price, market condition and brand value has given economic advantage to the Rodolfo from the competitors till the sudden change happened as mention in the discussion.Rodolfo has three alternatives to approach the business with new insight and action. Incremental costs and benefits are the basis for choices among alternatives where transactions have at least two sides, with each party considering their self-interest. Concept of an opportunity cost can be applied to differentiate between the value of one action and the value of the best alternative. He can invest innew technology and make furniture automatically, accurately and with almost no labor costs. So, developing expertise can create value. Other option is to become a broker for a Norway firm and coordinate the distribution channels for that firm. Also, he can apply third alternative of continuing with his current business and use the new patented technique of coating furniture. In this way,diversification can reduce risk and extraordinary returns are possible with new ideas (R. Emery, Douglas; D. Finnerty, John & John D. Stowe., 2007)).
The firm value is total of its liabilities and equity. Firm value of Rodolfo is $1,348,927 for year 2007 and $1,354,264 for year 2008 as reflected in Assets, Liabilities and Equity information for Rodolfo’s financial statement. It assesses the companyvalues of its assets. Equity is measure of current price of the all outstanding share of firm’s stock. Even if financing decision does not affect the firm’s value, it is helpful in estimating the cost of capital which is necessary for providing the value of minimum return investors can expect from their decision of investment in Rodolfo.
Capital Budgeting provides the decision parameter to checkwhether firm’s decision to invest in any project is worth pursuing or not. The classifications of investment project are determined by project size and the type of benefit to the company. Since project is over 1 million dollar, it is considered as large project. The company can plan to invest in expanding the business, acquisition, renovation or replacement of assets. Sales strategy is also involvedin investment decision.
The economic evaluations of investment proposal determine the right strategy for going ahead with any strategy like sales distribution, advertisement or R&D program. The time value of money is critical in any making important decision regarding accepting or rejecting the project. Some evaluation parameter is better than other parameter depending on the nature and...