Clipper owns 100 acres of mature woodland and is trying to decide when to harvest the trees. If it harvests immediately the net cash flow, after paying the professional loggers, will be £10,000. If it waits a year the trees will grow, so that the net cash flow will be £12,000. In two years, £14,000 can be obtained. After three years have elapsed, the cash flow will be £15,500, and thereafter will increase in value by £1,000 per annum.
Calculate the best time to cut the trees given a cost of capital of 10 per cent.