The United States Forest Service is considering a management plan (recreation and timber) for a particular forested
Question:
The United States Forest Service is considering a management plan (recreation and timber) for a particular forested area. Recreation would involve picnicking at a scenic overlook. Timber harvests would be restricted to an isolated area far removed from the recreation site; consequently, the two uses do not conflict (the timber harvests do not reduce the value of picnicking). Consider the following data: - Constructing a basic road into the forest leading to both the timber harvest site and the recreation site would cost $10,000 in year 0. - Strengthening an existing bridge to support logging trucks would cost $2000 in year 0. - A road spur (an addition to the basic road) to the scenic overlook and picnic area would cost $12,000 in year 0; - The net present value of all timber benefits from harvesting operations is $11,000 (these net benefits account for all timber revenues and harvesting costs) - The annual benefit of recreation is calculated to be $2000; this benefit is expected to start in year 1 and continue forever; - The discount rate is 10%. The data above is a complete list of all benefits and costs. Given this data, determine the net present value of each project. Which of the following options do you recommend? Show your work.
- Option 1: Use the area for timber only.
- Option 2: Use the area for recreation only (remember benefits for recreation start in year 1)
- Option 3: Use the area for both recreation and timber(remember benefits for recreation start in year 1
- Option 4: Do nothing.
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ