Manitowoc Crane (B). Manitowoc Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales...

 

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Manitowoc Crane (B). Manitowoc Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 16,000 units per year at the yuan equivalent of $22,000 each. The Chinese yuan (renminbi) has been trading at Yuan8.20/$, but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan9.00/$, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Manitowoc Crane faces a pricing decision in the face of the impending devaluation. It may either (1) maintain the same yuan price and in effect sell for fewer dollars, in which case Chinese volume will not change; or (2) maintain the same dollar price, raise the yuan price in China to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the U.S. sales price. Additionally, financial management believes that if it maintains the same yuan sales price, volume will increase at 10% per annum through year eight. Dollar costs will not change. At the end of 8 years, Manitowoc's patent expires and it will no longer export to China. After the yuan is devalued to Yuan9.00/$, no further devaluations are expected. If Manitowoc Crane raises the yuan price so as to maintain its dollar price, volume will increase at only 2% per annum through year eight, starting from the lower initial base of 14,400 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 13%. Given these considerations, what should be Manitowoc's pricing policy? If Manitowoc Crane maintains the same dollar price, raises the yuan price in China to offset the devaluation, and experiences a 10% drop in unit volume, the annual sales price per unit is $22,000. The direct cost per unit is 75% of the sales, or $22,000 x 0.75-$16,500 and the sales volume in year 1 is 16,000 (1-0.10)= 14,400. Calculate the growth profits for years 1 through 4 in the following table: (Round to the nearest dollar.) Case 2 Year 1 Year 2 Year 3 Year 4 Sales volume (units) 14,400 Sales price per unit $ 22,000 $ 22,000 $ 22,000 $ 22,000 Total sales revenue Direct cost per unit $ 16,500 $ 16,500 $ 16,500 $ 16,500 Total direct costs Gross profits Manitowoc Crane (B). Manitowoc Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 16,000 units per year at the yuan equivalent of $22,000 each. The Chinese yuan (renminbi) has been trading at Yuan8.20/$, but a Hong Kong advisory service predicts the renminbi will drop in value next week to Yuan9.00/$, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Manitowoc Crane faces a pricing decision in the face of the impending devaluation. It may either (1) maintain the same yuan price and in effect sell for fewer dollars, in which case Chinese volume will not change; or (2) maintain the same dollar price, raise the yuan price in China to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the U.S. sales price. Additionally, financial management believes that if it maintains the same yuan sales price, volume will increase at 10% per annum through year eight. Dollar costs will not change. At the end of 8 years, Manitowoc's patent expires and it will no longer export to China. After the yuan is devalued to Yuan9.00/$, no further devaluations are expected. If Manitowoc Crane raises the yuan price so as to maintain its dollar price, volume will increase at only 2% per annum through year eight, starting from the lower initial base of 14,400 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 13%. Given these considerations, what should be Manitowoc's pricing policy? If Manitowoc Crane maintains the same dollar price, raises the yuan price in China to offset the devaluation, and experiences a 10% drop in unit volume, the annual sales price per unit is $22,000. The direct cost per unit is 75% of the sales, or $22,000 x 0.75-$16,500 and the sales volume in year 1 is 16,000 (1-0.10)= 14,400. Calculate the growth profits for years 1 through 4 in the following table: (Round to the nearest dollar.) Case 2 Year 1 Year 2 Year 3 Year 4 Sales volume (units) 14,400 Sales price per unit $ 22,000 $ 22,000 $ 22,000 $ 22,000 Total sales revenue Direct cost per unit $ 16,500 $ 16,500 $ 16,500 $ 16,500 Total direct costs Gross profits

Answer rating: 100% (QA)

Answer To determine Manitowocs pricing policy we need to compare the two pricing strategies based on the given information 1 Maintain the same yuan pr... View the full answer