Question

Manitowoc Crane​ (B).  Manitowoc Crane​ (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 14,000 units per year at the yuan equivalent of $25,000

each. The Chinese yuan​ (renminbi) has been trading at Yuan7.80​/$,

but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan8.60​/$,

after which it will remain unchanged for at least a decade. Accepting this forecast as​ given, Manitowoc Crane faces a pricing decision in the face of the impending devaluation. It may either​ (1) maintain the same yuan price and in effect sell for fewer​ dollars, in which case Chinese volume will not​ change; or​ (2) maintain the same dollar​ price, raise the yuan price in China to offset the​ devaluation, and experience a​ 10% drop in unit volume. Direct costs are​ 75% of the U.S. sales price.

​

Additionally, financial management believes that if it maintains the same yuan sales​ price, volume will increase at 10​% per annum through year eight. Dollar costs will not change. At the end of 8​ years, Manitowoc's patent expires and it will no longer export to China. After the yuan is devalued to Yuan8.60/$, no further devaluations are expected. If Manitowoc Crane raises the yuan price so as to maintain its dollar​ price, volume will increase at only 11​% per annum through year​ eight, starting from the lower initial base of 12,600 units.​ Again, dollar costs will not​ change, and at the end of eight years Manitowoc Crane will stop exporting to China.​ Manitowoc's weighted average cost of capital is

15​%.

Given these​ considerations, what should be​ Manitowoc's pricing​ policy?

CASE 1

If Manitowoc Crane maintains the same yuan price and in effect sells for fewer​ dollars, the annual sales price per unit is equal to

​($25,000times×Yuan7.80​/$)÷Yuan8.60​/$=​$22,674.42.

The direct cost per unit is​ 75% of the​ sales, or

​$25,000times×0.75=$18,750.

Calculate the gross profits for years 1 through 4 in the following​ table:  ​(Round to the nearest​ dollar.)

Case 1	Year 1	Year 2	Year 3	Year 4
Sales volume (units)	14,000
Sales price per unit	$22,674.42	$22,674.42	$22,674.42	$22,674.42
Total sales revenue
Direct cost per unit	$18,750	$18,750	$18,750	$18,750
Total direct costs
Gross profits

Calculate the gross profits for years 5 through 8 in the following​ table:  ​(Round to the nearest​ dollar.)

Case 1	Year 5	Year 6	Year 7	Year 8
Sales volume (units)
Sales price per unit	$22,674.42	$22,674.42	$22,674.42	22,674.42
Total sales revenue
Direct cost per unit	$18,750	$18,750	$18,750	$18,750
Total direct costs
Gross profits

If​ Manitowoc's weighted average cost of capital is

15​%,

what is the cumulative present value of the​ firm's gross​ margin?

​$nothing  

​(Round to the nearest​ dollar.)

Answer 1

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