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Guillermo Furniture Store Analysis - Essay Example
Author : mooreisabel
Finance & Accounting
Pages 7 (1757 words)
Guillermo Furniture Store Analysis Name of Student Institution Guillermo Furniture Store Analysis Introduction Guillermo Furniture store is owned by Guillermo Navallez, located in Northern America. Guillermo has operated this business for several years successfully until late 20th century which saw him face the reality in a competitive global business environment (Brown, & Reilly, 2006)…
By use of the weighted average cost of capital (WACC), multiple valuation methods in minimizing the risks and calculation of Net Present Value (NPV) of future cash flows including sensitivity analysis, the company can find a solution to the impending problem. Weighted Average Cost of Capital The weighted average cost of capital (WACC) refers to the rate of return that the company or business anticipates acquiring on its optimal risk ventures in order to offer a considerable anticipated return to all its shareholders. It is applied in valuing new assets that possess similar risks as the existing assets and that hold a similar debt ratio. WACC is a relevant rate of discount specifically for projects that are similar to the current business operations (Brown, & Reilly, 2006). To determine WACC, one must first understand that a majority of firms use different forms of financing. Some of the financing techniques include use of bonds, ordinary shares, preferred shares and other form of securities. The securities have unique types of risks and thus owners seek to get various rates of return. ...