4 2 FOREST VALUATION 



Most elements of expense can be judged by past costs for similar 

 undertakings. Future expenses may and will vary from pres- 

 ent standards, for part of this expense is determined by prices, 

 part by wages and part by legislation and taxation. Uncer- 

 tainties regarding the trend of any of these elements of cost 

 interfere with the accuracy of the appraisal of value. A fruit- 

 ful source of uncertainty is future taxation. Legislation tending 

 to substitute a definite arrangement for this fluctuating item 

 is a great aid in appraising the value of forest property. 



65. The Time Element in Capital Value. When once the 

 future income and future expenses have been appraised, the 

 determination of the capital value of the property is a mathe- 

 matical calculation, dependent on the rate of interest chosen as 

 the basis of comparison between the present and the future 

 values involved. Each item of income is discounted for the 

 period of time intervening between the present moment and 

 the receipt of the income payment ( n). The sum of these 

 values equals the amount of money which is equivalent in pres- 

 ent value to the expected future income. The property is there- 

 fore considered as having this value. For this " time difference " 

 in value the rate of interest is the measure. In the same way, 

 future expenses are discounted to get net value. 



The greater the time interval between the present moment and 

 a future transaction, the less will be the importance of this trans- 

 action when discounted to determine its present money value. 

 The net capital value of property is practically determined by 

 events occurring within the next fifty years, not merely because 

 these events can be more accurately prophesied, but through the 

 operation of the factor of discount, based as it is on the laws of 

 compound interest. Not only are profits that are deferred for 

 fifty years of little significance to the investor (41), but the 

 future values themselves are correspondingly small when viewed 

 from the present standpoint. The immediate future occupies 

 the minds of men and its relative importance is mathematically 

 expressed in discounting to obtain capital values. 



66. Effect of Rate of Interest on Capital Value. The rate 

 of interest is a barometer which measures the fluctuations that 



