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7.1 Site preparation and planting a spruce-fir site with Douglas-fir seedlings costs $250 per acre. When mature at 100 years, the stand is expected to have 40,000 bd.ft. of sawlogs per acre. At future stumpage prices of $100, $200, $300, and $400 per thousand board feet, what is the earning rate of the planting investment at each price?

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7.2 An investment in precommercial thinning (PCT) of lodgepole pine costs $75 per acre. The growth increase, when harvested 40 years after treatment, is an additional 5 MBF of sawlogs and 10 cords of firewood per acre. Stumpage prices are $100 per MBF for sawtimber and $10 per cord for firewood, now and in the future.

(a) Calculate the earning rate on this investment.

(b) What is the net present value of the investment at an interest rate of 10 percent?

(c) Would you recommend the treatment if the guiding rate were 10 percent?

(d) What is the maximum amount you could spend per acre for the treatment and realize a 10 percent return on investment?

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7.3 Hunt club lease. Jane Hawley inherited a wooded farm on Virginia's Eastern Shore in late December 2000. The farm had long been used for goose and deer hunting by a club that held a valid lease signed by her father with 25 years yet to run. The lease required a payment of $15,000 to be made every 3 years. The next payment is due in December 2001 and every 3 years thereafter until the last payment in December 2025. Jane's guiding rate is 10 percent.

(a) Calculate the present net value of the hunting club lease as of December 2000 for purposes of estimating inheritance taxes. (Use the periodic series equations).

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7.4 Wildlife and timber. The average annual yield for a 2500-acre management area was reduced from $30 per acre to $20 per acre by a prescription to enhance wildlife and domestic forage production. If the increase in forage is valued at $1.50 per acre per year, what is the present value of increased wildlife benefits for the whole management area needed to equal the net reduction in commercial values? Assume a planning horizon of 50 years and a guiding interest rate of 7 percent. Is your answer an estimate of (1) the opportunity cost of the activities to enhance wildlife or (2) the value of the increased wildlife benefits?

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7.5 Inflation. A plantation that is established today at a cost of $100 is expected to provide a thinning yield of 20 cords of pulpwood at age 20 and, when regeneration harvested at age 30, a pulpwood yield of 10 cords plus a sawtimber yield of 20 MBF. Current stumpage prices are $15 per cord for pulpwood and $150 per MBF for sawtimber. The wholesale price index is forecast to inflate at a rate of 5 percent, pulpwood prices to inflate at 3 percent, and sawtimber prices to inflate at 9 percent over the next 30 years. The owner expects a real rate of return of 4 percent on timberland investments. What is the present value of all revenues for one rotation?

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7.6 Management options for an uneven-aged forest. An uneven-aged hardwood forest currently has an inventory of 17 MBF of growing stock. This timber sells for $250 per MBF now and in the future. The owner has a guiding rate of 6 percent. The forester has determined that the ideal, sustainable reserve growing stock level is 12 MBF and two options for initiating management need financial evaluation:

Option 1: Immediately harvest 5 MBF and reduce the stand to the reserve growing stock of 12 MBF and subsequently harvest 10 MBF every 20 years forever.

Option 2: Wait 10 years when the stand will have an inventory of 26 MBF, harvest 14 MBF reducing the inventory to 12 MBF and subsequently harvest 10 MBF every 20 years forever.

(a) Calculate the net present value (NPV) of both options.

(b) Calculate the NPV of both options if a 7 percent rate of price increase for hardwood stumpage and a 4 percent rise in the wholesale price index is expected forever. The owner expects a real rate of return of 5 percent.

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7.7 Single tree cut or leave decision. You own one majestic yellow poplar tree that now contains 1000 bd.ft. Over the next 10 years, you expect it to increase by 500 bd.ft. Assume that

(a) You wish to maximize your NPV over an infinite planning horizon using a guiding rate of return of 4 percent.

(b) You expect yellow poplar timber to be worth $200/MBF now and in the future.

(c) After you cut this tree, another yellow poplar tree will become established that will grow to 750 bd.ft. in 25 years and to 1000 bd.ft. in 35 years.

should you wait to cut your tree for at least 10 years or should you cut it now? First, make the calculations in terms of future values: tree value now, tree value in 10 years, tree value growth, stock holding cost, land holding cost, total cost, net gain from holding, and decision.

Second, make the calculations in terms of present values.

If the existing tree would not hinder establishment and growth of a young yellow poplar, would your decision change?

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7.8 Timberland purchase. You are examining some land that you might buy to grow commercial timber. You figure that such an enterprise would have the following costs and returns per acre:

What is the maximum amount that you could pay for this land per acre assuming that

(a) You wish to maximize your net present value?

(b) You have an infinite planning horizon?

The rate of return on your next best investment is 5 percent?

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7.9 Timberland purchase-deer production. Redo question 7.8 under the assumption that you can also produce deer in addition to producing timber, according to the following yield table. Assume that each deer is worth $25.

What is the maximum amount that you could now pay for the acre?

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7.10 Soil expectation value. You own 2 acres of timberland on which you would like to grow timber. You figure that such an enterprise would have the following costs and returns per acre: Planting cost: $100. Interest rate: 4 percent. Revenue at final harvest:

Find the rotation age with the maximum soil expectation value. What is the maximum value? If you precommercially thinned, you believe that you could raise the net revenue at rotation age by 20 percent at a cost of $75 in year 10. Will precommercial thinning raise or lower your maximum soil expectation value? By how much?