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111 Homework: Chapter 12 Homework Manitowoc Crane (B). Manitowoc Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 10,000 units per year at the yuan equivalent of $24,000 each. The Chinese yuan (renminbi) has been trading at Yuan8.20/$, but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan9.20/S, 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. Case 1 Sales volume (units) Sales price per unit Additionally, financial management believes that if it maintains the same yuan sales price, volume will increase at 12% 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 Yuan9.20/$, no further devaluations are expected. If Manitowoc Crane raises the yuan price so as to maintain its dollar price, volume will increase at only 1% per annum through year eight, starting from the lower initial base of 9,000 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 10%. Given these considerations, what should be Manitowoc's pricing policy? Total sales revenue VADE I If Manitowoc Crane maintains the same yuan price and in effect sells for fewer dollars, the annual sales price per unit is equal to ($24,000 x Yuan8.20/5) - Yuan9.20/5-$21,391.3. The direct cost per unit is 75% of the sales, or $24,000x0.75=$18,000. Calculate the gross profits for years 1 through 4 in the following table: (Round to the nearest dollar) Year 2 Direct cost per unit Total direct costs Gross profits View an example $ $ Year 1 Question 2, Problem 12-4 (book/static) Part 1 of 7 10,000 21,391.3 $ 18,000 $ Etext pages 21,391.3 $ 18,000 $ Year 3 21,391.3 $ 18,000 $ Financial calculator HW Score: 0%, 0 of 10 points O Points: 0 of 4 Year 4 21,391.3 Save 18,000 Clear all Check

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