Area 1 Area 2 



Quality index .90 .90 



Road costs 1 year before logging (dollars per acre) 24.00 22.00 



Sales cost 2 years before logging (dollars per acre) 7.00 6.00 



Future timber growing opportunity 



Thinning 30 years after logging on poor land, 

 15 years after logging on good land (dollars 



per acre) 23.00 23.00 



Intermediate yield 45 years after thinning on 

 poor land, 35 years after thinning on good 



land ( 1 00 cubic feet per acre) — 20.00 



Quality index — .35 



Intermediate cut 50 years after thinning (100 



cubic feet per acre) 25.00 30.00 



Quality index ^ .35 .50 



Harvest yield 80 years after thinning on poor land, 

 66 years after thinning on good land (100 cubic 



feet per acre) ^ 80.00 120.00 



Quality index ^ .90 1.40 



Price assumption 



Price (dollars per 100 cubic feet) - 7.00 7.00 



Expected increase in price per year (rate) .005 .005 



The problem solution is shown in figure 5. 

 The computer lists discounted present worth 

 of future crops for the range of interest rates 

 specified. This listing also reveals the expected 

 internal rate of return in future timber grow- 

 ing. In the case of area 1 it is between 4.8 and 

 4.9 percent. Between these rates, discounted 

 net worth becomes zero. For area 2 the ex- 

 pected internal rate of return is much higher 

 — between 7.4 and 7.5 percent. 



The second listing shows the discounted 

 net worth of the present and future stands. 

 If, in ranking stands, 3.6 percent were set as 

 the point at which stands would be cut, a 

 manager would cut area 2 in preference to area 

 1 because, as this listing shows, discounted 

 net worth is greater by S2.64. To the extent 

 that a manager could fill his cutting budget 

 from areas like area 2, he would defer cutting 

 areas like area 1 . 



RANKING STAND IMPROVEMENT 

 PROJECTS 



Investment Analysis Program No. 6 can also 

 be used for evaluating timber stand improve- 

 ment opportunities when the manager is con- 

 cerned about cost in relation to the margin of 

 difference resulting from treatment. For ex- 

 ample, assume a manager has a heavily over- 

 stocked 20-year old stand: if he did nothing 

 the stand would yield a harvest cut of 6,000 

 cubic feet of merchantable wood (about 

 30.000 board feet) in 100 years (at age 120). 

 He might wish to know what the advantage 

 would be of precommercial thinning and prun- 

 ing. With precommercial thinning he might 

 expect two commercial thinnings, one of 

 1,200 cubic feet (about 5,000 board feet) in 

 35 years (at age 55), and one of 2,000 cubic 



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