108 FOREST VALUATION 



future profits. Should Formula LI be derived in the same way 

 as KI the result stands 



" (Sv ~ 



which indicates a means of separating the profits on the stand- 

 ing timber from that on the future crops, or "soil," parallel to 

 the method employed for sale values in 123. 



The true derivation of Formula LI is from value ( 116, D 2 ) 

 and cost (105, A 2 ) of the entire property, timber and soil. 



Then 



P = a F v - F C . (U) 



127. Profits Expressed in Soil Values. In the year in 

 which the enterprise of planting or reproduction is undertaken, 

 and previous to the actual planting, the net value of all future 

 income is S v , or, expressing this value as discounted from future 

 crops, it equals 



V C 



i. op" - i 



The cost includes merely the price paid for the soil 5 C . Then, 

 P = S v - S e . (L 3 ) 



Since this profit is shown for the year previous to undertaking 

 forestry, it is taken as an indication of the advisability of such 

 an enterprise. This relation shows clearly the nature of S v , 

 which is merely a calculation of discounted net income. S v 

 does not indicate what a purchaser should pay for land. It 

 indicates the highest price which he can afford to pay and still 

 expect to earn the desired rate, p per cent, on his undertaking. If 

 more than this is paid, a prospective loss is incurred, i.e. he 

 cannot expect to earn as much as p per cent. If the land costs 

 less than S v he has good prospects of earning a profit at p 

 per cent, or a rate of income, x, exceeding p per cent on his 

 investment. If a purchaser is so foolish as to deliberately 

 convert his expected profits (S v S c } into costs, by making 

 S c = S v , he is merely handing over these profits to the one who 

 sells him the property. 



