Quality index for intermediate cut 



Harvest cut 30 years after intermediate 

 cut (100 cubic feet per acre) 



Quality index for harvest cut 

 Price assumption 



Net price (dollars per 100 cubic feet) 

 Expected increase in price per year (rate) 



Alternative 1 

 (cut now) 



.35 



90 

 1.10 



5.00 

 .005 



Alternative 2 

 (cut in 10 years) 



.35 



90 

 1.10 



5.00 

 .005 



Note that for both the present and the future 

 stands the anticipated schedule of investments 

 and yields is listed. In each case quality of 

 yield is indicated.^ Note also that it has been 

 assumed that real wood prices will increase 

 slightly in the future (0.5 percent per year). 

 The program provides the opportunity to 

 assign current prices to products and include 

 an estimate of how prices are expected to 

 change over time. 



For use with the computer program, the 

 data in the above tabulation must be prepared 

 for computer input. (Instructions for prepar- 

 ing problem input are given in the Appendix.) 



The problem solution is shown in figure 4. 

 After printing the program input, the comput- 

 er lists the discounted net worth of future 

 crops. This listing also reveals the expected 

 internal rate of return in future timber grow- 

 ing if the range of interest rates specified in- 

 cludes the rate at which present worth is $0.00. 



In this case expected internal rate of return 

 on future timber growing is between 5.6 and 

 5.7 percent. It is between these rates that 

 discounted net worth becomes zero. This list- 

 ing is included in the output to help the man- 



The quality index is the ratio of the estimated 

 price for the specific product to the average price 

 expected for the product. 



ager decide whether to consider timber grow- 

 ing on the area if investments are required. 



The second listing shows discounted net 

 worth for the present and future stands. This 

 listing shows that present worth for alternative 

 2 is still greater than for alternative 1 at 3.5 

 percent rate of return. This may be considered 

 a lower rate of return than is desirable, but 

 because managers in this area have so much 

 timber in need of cutting, they may want to 

 hold this stand and fill cutting budgets from 

 stands for which present worth was decreasing 

 with time, assuming the same rate of return. 



In addition to using the investment analysis 

 computer program to check his judgments 

 about what stands to consider for cutting, the 

 manager can also use the program to establish 

 cutting priorities among stands ready for cut- 

 ting. If a manager were not forced to cut in a 

 specific area to control the spread of some 

 forest infection, he logically would cut in 

 those areas where (again considering present 

 stand value and the future timber growing 

 opportunity) the greatest contribution to rev- 

 enue could be made. Here, again, costs and 

 values associated with both the present stand 

 and the future stand would be considered. 



The present stand and the future timber 

 growing opportunity on two areas described 

 in the following tabulation are used for illus- 

 tration. 



Area 1 Area 2 



Present stand and conversion opportunity 



Merchantable volume per acre (100 cubic feet 



per acre) 74 59 



15 



