544 MISC. PUBLICATION 218, U. 8S. DEPT. OF AGRICULTURE 
and the weight to be attached to each. A standardized form to be 
supplied by the State would be useful in this connection. 
THE DISCOUNT FORMULA AS AN ‘AID TO ASSESSMENT 
Where evidence supplied by sales is extremely erratic and unreliable 
as it often is with respect to immature timber, a discount process may 
be useful as an aid to consistent assessment. This method of valua- 
tion involves an estimate of the volume of mature timber likely to 
develop within a given number of years from the present stand of 
immature timber, and in addition an assumption as to the price of 
timber at the date of maturity. Such a valuation should also take 
into account expected carrying charges. This method is of little 
direct use to the assessor, but may be used together with such sales 
data as may be applicable, by an expert in the State tax commission 
office, as an aid to establishing standard tables for appraising second- 
growth stands of different types and average s zes. These tables can 
eae applied by assessors on the basis of the condition of each 
stand. 
The formula method, however, is inherently weak, on account of 
the obvious difficulty of estimating future yields, future prices, and 
future tax rates, of taking proper account of risk, and of choosing the 
proper interest ‘rate. It would appear that determination of these 
iactors would ordinarily be at least as difficult as estimating the value 
of the property directly. Moderate errors in one or more of these 
factors would result in great differences in the calculated value. It 
should be clearly understood that a single property has only one 
value at any given moment. If the discount process gives a result 
which is different from the value as determined by more competent 
evidence, the formula result must give way. 
The formula for finding the value of an immature even-aged forest at the end 
of the mth year of the rotation is as follows: 
eee p+r 
V»=value at end of mth year in a rotation. 
Y=yield expected at end of nth year (end of rotation). 
C=cost of regeneration at end of nth year. 
p+r=interest rate plus tax rate. 
T ,=intermediated income expected at the end of the gth year between 
mth and nth years. 
If intermediate income occurs after nth year, in the next rotation, expression 
is T, (1+p-+1r)"~¢ rather than 7',(1+p-+7r)*t™2, 
paar + = capitalized annual expenses other than taxes and interest. 
n=rotation. 
If no rotation is known, the following formula should be used in place of that 
above: 
2) V= T Y+L e Cpa 
where: 
eta) Gp ire eee 
V=present value. 
T and Y=value of timber to be cut from property ¢ and y years hence, 
respectively, bare land only to be left at end of y vears. 
tand y=years of waiting before incomes 7’ and Y, respectively, are 
received. 
L=bare land value at end of y years. 
p+r=interest rate plus tax rate. 
where: 
—° capitalized annual expenses other than taxes and interest. 
Dah 
