Richland Crane (B). Richland Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 12,000 units per year at the yuan equivalent of USD26,000 each. The Chinese yuan (CNY) has been trading at CNY7.70=USD1.00, but a Hong Kong advisory service predicts the renminbi will drop in value next week to CNY8.60 = USD1.00, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Richland 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, Richland's patent expires and it will no longer export to China. After the yuan is devalued to CNY8.60 = USD1.00, no further devaluations are expected. If Richland 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 10,800 units. Again, dollar costs will not change, and at the end of eight years Richland Crane will stop exporting to China. Richland's weighted average cost of capital is 15%. Given these considerations, what should be Richland's pricing policy? CASE 1 If Richland Crane maintains the same yuan price and in effect sells for fewer dollars, the annual sales price per unit is equal to (USD26,000 XCNY7.70/USD 1.00) + CNY8.60/USD 1.00=USD23,279.07. The direct cost per unit is 75% of the sales, or USD26,000 X 0.75 = USD19,500. 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) 12,000 Sales price per unit USD 23,279.07 USD 23,279.07 USD 23,279.07 USD 23,279.07 Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD 19,500 Total direct costs Gross profits USD USD USD USD 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 Sales volume (units) Sales price per unit USD 23,279.07 USD 23,279.07 USD 23,279.07 USD Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD Total direct costs Gross profits USD USD USD USD Total sales revenue Total sales revenue Year 8 23,279.07 19,500 If Richland's weighted average cost of capital is 15%, what is the cumulative present value of the firm's gross margin? USD (Round to the nearest dollar.) CASE 2 If Richland 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 USD26,000. The direct cost per unit is 75% of the sales, or USD26,000x0.75=USD19,500 and the sales volume in year 1 is 12,000(1-0.10) = 10,800. 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) 10,800 Sales price per unit USD 26,000 USD 26,000 USD 26,000 USD Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD Total direct costs Gross profits USD USD USD USD Calculate the growth profits for years 5 through 8 in the following table: (Round to the nearest dollar.) Case 2 Year 5 Year 6 Year 7 Sales volume (units) Sales price per unit USD 26,000 USD 26,000 USD 26,000 USD Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD Total sales revenue Total sales revenue 26,000 19,500 Year 8 26,000 19,500 Total direct costs Gross profits USD USD USD USD If Richland's weighted average cost of capital is 15%, what is the cumulative present value of the firm's gross margin? USD (Round to the nearest dollar.) What should be Richland's pricing policy? (Select from the drop-down menu.) is better because it yields higher profits. Richland Crane (B). Richland Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 12,000 units per year at the yuan equivalent of USD26,000 each. The Chinese yuan (CNY) has been trading at CNY7.70=USD1.00, but a Hong Kong advisory service predicts the renminbi will drop in value next week to CNY8.60 = USD1.00, after which it will remain unchanged for at least a decade. Accepting this forecast as given, Richland 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, Richland's patent expires and it will no longer export to China. After the yuan is devalued to CNY8.60 = USD1.00, no further devaluations are expected. If Richland 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 10,800 units. Again, dollar costs will not change, and at the end of eight years Richland Crane will stop exporting to China. Richland's weighted average cost of capital is 15%. Given these considerations, what should be Richland's pricing policy? CASE 1 If Richland Crane maintains the same yuan price and in effect sells for fewer dollars, the annual sales price per unit is equal to (USD26,000 XCNY7.70/USD 1.00) + CNY8.60/USD 1.00=USD23,279.07. The direct cost per unit is 75% of the sales, or USD26,000 X 0.75 = USD19,500. 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) 12,000 Sales price per unit USD 23,279.07 USD 23,279.07 USD 23,279.07 USD 23,279.07 Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD 19,500 Total direct costs Gross profits USD USD USD USD 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 Sales volume (units) Sales price per unit USD 23,279.07 USD 23,279.07 USD 23,279.07 USD Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD Total direct costs Gross profits USD USD USD USD Total sales revenue Total sales revenue Year 8 23,279.07 19,500 If Richland's weighted average cost of capital is 15%, what is the cumulative present value of the firm's gross margin? USD (Round to the nearest dollar.) CASE 2 If Richland 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 USD26,000. The direct cost per unit is 75% of the sales, or USD26,000x0.75=USD19,500 and the sales volume in year 1 is 12,000(1-0.10) = 10,800. 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) 10,800 Sales price per unit USD 26,000 USD 26,000 USD 26,000 USD Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD Total direct costs Gross profits USD USD USD USD Calculate the growth profits for years 5 through 8 in the following table: (Round to the nearest dollar.) Case 2 Year 5 Year 6 Year 7 Sales volume (units) Sales price per unit USD 26,000 USD 26,000 USD 26,000 USD Direct cost per unit USD 19,500 USD 19,500 USD 19,500 USD Total sales revenue Total sales revenue 26,000 19,500 Year 8 26,000 19,500 Total direct costs Gross profits USD USD USD USD If Richland's weighted average cost of capital is 15%, what is the cumulative present value of the firm's gross margin? USD (Round to the nearest dollar.) What should be Richland's pricing policy? (Select from the drop-down menu.) is better because it yields higher profits