INFLUENCE OF FOREST FIRES ON RATE OF 

 INTEREST. 



PREMISES: Absolutely safe investments (f. i. U. S. bonds) 

 yield about 3 per cent, interest on the principal. 



Forestry in America is a less safe investment. Of course, trees 

 live and grow as sure as the sun shines, the wind blows and the 

 rain falls, for sunshine, air and rainwater are the components of 

 wood fibre. Still the ravages of forest fires endanger both capital 

 and returns from capital. 



In the Southern AUeghanies, 2 per cent, of the woodlands, on 

 an average, are annually damaged by fire. Nature will require 20 

 years for the restoration of the burned forest to its former value and 

 productiveness. 



QUESTION : What is the minimum rate of annual interest 

 which forest-growth, under these conditions, must yield ? 



POINTS : , 



1. 98 acres out of lod acres are left intact, 2 acres out of 100 

 acres suffer a reverse resulting in a setback of 20 years. 



2. Hence the value of those 2 acres is reducd to yrio of 

 what it was to begin with. 



3. The growth of every 98 units of value left intact must 

 make up for the loss through burning in such a way, as to bring the 

 value of the total investment, at the end of the year, up to 103. 



4. The 98 develop into the value 98 x i.oX. This value, plus 

 what remains of the 2 units damaged by fire, must be 103 if the in- 

 vestor shall make 3 per cent, on the original principal. 



EQUATION : 98 x i.oX I y^ = 103 



RESULT : 4 1-4 per cent. Unless those sections of the forest, 

 which are left intact, grow at a rate of 4 1-4 per cent^ the owner 

 does not make 3 per cent, of absolute interest on the whole 

 investment. It will pay the owner to annually spend up to i 1-4 

 per cent, of the investment for forest protection, if by such expen- 

 sive precaution fires can be entirely avoided. 



Where fires result, on the annual average, in the entire destruc- 

 tion of 5 per cent, of the forest, the annual production on areas left 

 intact must amount to at least 8.4 per cent, if the entire investment 

 is to bring 3 per cent, interest. Such a production is impossible, 

 unless the price of standing timber doubles within the next 15 

 years. 



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