ANOTHER YELLOW POPLAR PROBLEM (N.C.) 



PREMISES : Pisgah forest contains 40,000 acres, stocked 

 with 60 million feet board measure yellow poplar of superior quality, 

 worth now $3.50 per thousand feet board measure. The owner 

 expects that the prices of yellow poplar stumpage will double within 

 the next 15 years (increase of 5 per cent, per annum), and that then 

 small logs and defective logs will have a value as well, so that 70 

 million feet board measure will be available in the year 1915. 



The taxes and the general expenses take six cents per acre per 

 annum 



The value of the soil, after the timber is cut, can be assumed to 

 be $2 per acre. 



The owner figures at 6 per cent, interest. 



QUESTION : What is the profit from the investment, if any 

 at the end of the next 15 years, aside from the interest of 6 per cent? 



POINTS : 



1. The present value of the investment is $60,000x3.50 for the 

 trees and $40,000 x 2.00 for the soil. 



2. The value of the forest in 1915 is $70,000 x 7.00 for the trees 

 and $40,000 X 2.00 for the soil. 



3. The running expenses from 1900 to 1915 are, per annum, 

 $0.06 X 40,000. They accumulate up to 1915, to the sum 



0.06 X 40,000 (1.06" — I) 



0.06 



EQUATION : X = 70,000 x 7.00 ^ 40,000 x 2.00 — 



,,.,, ^ , . _ ^ 0.06x40,000(1.06'^ — !) 



i.o6'^(6o,ooo X 3.50 J- 40,000 X 2.00) ^^-^ ^ i 



0.00 



RESULT : The owner will find himself $182,000 short. He 

 will lack a good deal from making 6 per cent, on his investment. 

 As a matter of fact, he will make about 4 per cent, on the invest- 

 ment and no more, unless the stumpage prices do more than double 

 within the next 15 years. 



