Question

You own a white spruce plantation. Based on current tree diameter, stocking levels, productivity rates, and timber markets, you estimate that commercial harvesting by thinning can occur after 40 and 50 years, respectively, with a final timber harvest in 75 years. The estimated per acre returns at the time of the two thinnings (partial harvests) and final harvest are $300, $350, and $850, respectively.

What is the present value of the two thinning treatements, assuming a 4% discount rate?

What is the present value of these three harvesting activities, assuming a 4% discount rate?

Answer 1

ANSWER: I = 4% , N = 40 , 50 AND 75 YEARS RESPECTIVELY FOR THE THREE HARVESTS.

1) PV ( AFTER TWO THINING TREATMENTS) = RETURN AFTER 40 YEARS(P/F,I,N) + RETURN AFTER 50 YEARS(P/F,I,N)

PV ( AFTER TWO THINING TREATMENTS) = 300(P/F,4%,40) + 350(P/F,4%,50) = 300 * 0.2083 + 350 * .1407 = 62.49 + 49.245 = $111.735

2) PV ( AFTER THREE THINING TREATMENTS) = RETURN AFTER 40 YEARS(P/F,I,N) + RETURN AFTER 50 YEARS(P/F,I,N) + RETURN AFTER 75 YEARS(P/F,I%,N)

PV ( AFTER TWO THINING TREATMENTS) = 300(P/F,4%,40) + 350(P/F,4%,50) + 850(P/F,4%,75) = 300 * 0.2083 + 350 * .1407 + 850 * 0.0528 = 62.49 + 49.245 + 44.88 = $156.615