Stumpage Appraised Formulae. 377 



There are advantages inherent in each fomiula. The oper- 

 ating cost method is simpler to apply while the other is con- 

 sidered to be more accurate though possibly more difficult of 

 application. It is, however, an error to claim that either formula 

 is universal in its application. It can be shown that cases are 

 possible where each gives ridiculous results unless' the profit per- 

 centages are varied through an extreme range. To thus vary 

 these percentages widely almost nullifies the value of the formula 

 since it places the final decision squarely back on the judgment 

 of the appraiser. The customary percentages with the Forester's 

 formula are from 15 to 20 per cent, and for the investment 

 formula from 10 to 15 per cent. The following examples will 

 show cases in which widely different figures must be used. While 

 these cases are hypothetical, the figures used are typical of log- 

 ging chances in western Montana and northern Idaho. The 

 conditions are extreme, but yet are actually met. 



Case I. An easy logging chance of about 22,500 M. B. M. 

 to be handled at the rate of 7,500,000 a year; largely direct 

 skidding to the river bank where the logs can be sold in the 

 deck. 



Estimated cost of logging, $3.00 per M. 



Estimated cost of improvements and 

 equipment (including interest) .45 



Total cost of operation $.3-45 



Average sale value of logs, 6.50 



Margin for profit and interest 3.05 



Average investment, improvements, . . $1,000.00 



Average investment, equipment, 4,000.00 



Average working capital, 5,000.00 



Total average investment, $10,000.00 



By the investment method: allowing 15 per cent, per annum 

 profit on the average investment gives as total profit, $1500 on 

 7,500 M. B. M.; profit per M. 20c; stumpage ($3.05 — 20c) — 

 $2.85. It is obvious that this profit of 20c, while a fair return on 

 the invested capital, is a ridiculously small margin over the esti- 

 mated operating cost and one which would not justify a logger in 

 undertaking the job. By the Forester's formula, on the other hand ; 

 allowing 20 per cent profit, the stumpage amounts to $1.95, and 

 $1.10 is allowed for profit. ($i.95=$6.50 — $3.45 — 20% X ($345 



