192 FOREST VALUATION 



conditions continue to pay a profit as great as it pays now, if 

 stumpage does not increase in value, or, rather, if the margin of 

 prices over cost of operation does not increase in per cent ( 187). 

 Were the forest itself composed of stands of all ages, which 

 are cut upon reaching maturity, this condition would actually 

 occur, and advancing prices for stumpage would simply increase 

 the profits. 



The conditions confronting the holder of stumpage, who is 

 also an operator, partake of both of these extremes or lie between 

 them. The total investment in stumpage is not maintained, 

 except through extending the area by purchase, but diminishes 

 constantly by cutting, with a corresponding lightening of the 

 annual carrying charges, and a reduction of the capital invest- 

 ment (175). 



It is hardly to be expected that a company planning extensive 

 operations over a long period, will inaugurate a scheme of cut- 

 ting so comprehensive that they will be enabled to earn their 

 carrying charges for the first few years, and at the same time 

 pay dividends on the total capital investment. The actual 

 annual outlay may absorb every cent of annual income for a 

 while. When interest on bonds is added to other carrying 

 charges the burden in the earlier years is still heavier, and it 

 may require additions to capital to meet these charges. Some 

 companies owning extensive timber properties have lost this 

 timber by foreclosure, because of non-payment of interest on 

 bonds through inability to obtain this additional capital. 



With reduction in interest on bonds, in taxes and in other 

 expenses, a company comes sooner or later to a condition per- 

 mitting of the payment of dividends. Up to that time, it might 

 be assumed that the value of stumpage must increase, in order 

 that the dividends when received shall be large enough to com- 

 pensate for their absence in earlier years. From then on, with 

 both the annual expenses and dividends paid from the annual 

 net income, an increase in stumpage value or in net income 

 means a corresponding increase in surplus and dividend rates. 

 When a company is able, by operating, to secure a sufficient 

 net income to meet all expenses and pay dividends from the 



