That's how it works
The question's assessment of how the 1st-level ranger spell hunter's mercy [div] (Spell Compendium 117) interacts with the metamagic feat Repeat Spell (Complete Arcane 82–3) is accurate.
The unusual interaction between the hunter's mercy spell's entry of Duration: 1 round and its description that specifically says, "Your first hit with a bow… in the next round [n.b. not this round but after the spell's duration expires] is automatically a critical hit," essentially prevents a caster from, for example, benefiting from a second or more hunter's mercy spell's effect twice on the round after they're cast, like one hunter's mercy spell cast normally and a second a hunter's mercy spell cast on the same turn using the metamagic feat Quicken Spell (Player's Handbook 98) (q.v. Combining Magical Effects (PH 171–2)). This interaction of game elements reduces arguments about double critical hits, for example, and limits the possibility of reading differently the word first in the spell's description because of timing issues.
While the question provides an overview of how this works in play, for clarity, the following is a step-by-step example:
Example
- Turn 1: Abe takes a move action to move and, during that move action, takes a free action to draw his wand of repeat hunter's mercy. Abe takes a standard action to activate the wand, spending 1 of the wand's charges.
- Turn 2: Right before Abe's turn begins, the 1-round duration of the spell hunter's mercy expires. At the beginning of Abe's turn, the repeated iteration of the spell hunter's mercy is cast on Abe. Abe takes a free action to activate his glove of the master strategist to retrieve his bow, takes a free action to swap hands with his bow and his wand, and activates his glove of the master strategist again to stow the wand. Abe takes a full-round action to make a full attack, launching a bunch of arrows at the roper (Monster Manual 215-16) that thought it was concealed across the chasm. Abe's first attack hits and, because of the effect of the spell hunter's mercy, is automatically a critical hit.
- Turn 3: Right before Abe's turn begins, the 1-round duration of the repeated iteration spell hunter's mercy expires. Abe takes a full-round action to make a full attack, launching a bunch of arrows at that same poor roper. Abe's first attack hits and, because of the effect of the repeated iteration of the spell hunter's mercy, is automatically a critical hit. The roper dies.
A wand of repeat hunter's mercy, by the way is no small investment—a repeat hunter's mercy spell is typically considered a 4th-level spell when made into a magic item, and the modified spell's caster level is typically 7; this makes the price of a wand of repeat hunter's mercy typically 21,000 gp… or 420 gp per charge.
This isn't an obscene amount for a high-level character to spend during combat—a high-level flasked avenger can spend significantly more—, but this kind of investment is something that a ranger keeps in his glove of the master strategist (Ghostwalk 71) (3,600 gp; 0 lbs.) or in the wand chamber (Dungeonscape 30, 34) (100 gp; 0 lbs.) of his bow—or even his braid blade (Dungeon #120 35) (10 gp; 0.5 lbs.) or another weapon that's always ready—, rather than activating the wand, taking a free action to drop it, and recovering it later.
