FOREST FINARCE 23 



This possibility of interpretation allows of the expression of widely dif- 

 ferent forecasts by a mere change of the rate of interest underlying the cal- 

 culation. The basal rate underlying an equation does not or need not design- 

 ate the actual dividend expected by the calculator. It is the mathematical 

 outcome of his fears and his hopes, of gloomy and of rosy anticipations. 



PARAGRAPH IX.— EXPECTATION VALUE. 



The actual value of any object to its owner, or to anybody else (cow, 

 house, railroad bonds, mining stock) equals the pre-value of the expected ser- 

 vices or yields, diminished by the pre-value of the expected expense required 

 to obtain such services or yields. Obviously, the rate of discount is of para- 

 mount importance relative to the result of the calculation. "Individual opin- 

 ion" governs the rate of discount as well as the anticipations°of future events. 



Values rise with the expectation of rising yields, of sinking expenses and 

 or reduced rates of interest, and vice versa. Obviously, the selection of the 

 rate of interest, and the forecasts of future yields and expenses, depend, above 

 all, on personal opinions which may be pessimistic or optimistic, bearish or 

 bullish. 



Applied to forestry, we find the following expectation values: 



1. Value of a regular second growth forest (m) years old: 



thn. thnb thuc f.c.+s.v.+V 



+ + + V 



1.0pa-m 1.0pl>-"» 1.0p"=-" 1.0p'-™ 



wherein tbna, thnb, thnc stands for thinnings in the year a, b, and 

 c of the forest; f.c, for value of final cut; s.v., for soil value after 

 final cut, and V for a perpetual rental defraying taxes and admini- 

 strative expenses reduced by annual receipts for leases, etc. 



2. The value of bare, absolute forest soil, planted up at an expense of 



"pig" and weeded at an expense of "weed" equals 



thn. X 1.0p»-" +thnb X l.Op^-b +f.c.— • pig —weed X l.Op"^-" 



V-plg 



(l.Op' — 1) 



3. The value of an ideal forest in which all age classes are present, which 

 is conservatively managed, close to a ready market (so that m every 

 year of the future there may be obtained a yield from a thinning in 

 a woodlot "a", "b", "c" years old and also a final yield diminished 

 by reforestation expenses, whilst the expense of administration is an- 

 nually "v" for the entire forest) amounts to 



thn, +thnb -(-thnc -I- (f .c— pltg) — v 



^ in which 



O.Op 



thn equals thinnings 

 p " rate per cent, 



f.c. " final cut 

 pltg " plantmg. 



