Bunyan Lumber, LLC Mini Case

Now we can calculate the cash flow for each harvest schedule. One important note is that

no depreciation is given in the case. Since the harvest time is likely to be short, the

assumption is that no depreciation is attributable to the harvest. This implies that

operating cash flow is equal to net income. Now we can calculate the NPV of each

harvest schedule. The NPV of each harvest schedule is the NPV of the first harvest, the

NPV of the thinning, the NPV of all future harvests, minus the present value of the

conservation fund costs.

40-year harvest schedule:

Revenue $40,359,135

Tractor cost 9,870,000

Road 3,525,000

Sale preparation & admin 1,269,000

Excavator piling 750,000

Broadcast burning 1,500,000

Site preparation 725,000

Planting costs 1,125,000

EBIT $21,595,135

Taxes 7,558,297

Net income (OCF) $14,036,838

The PV of the first harvest in 20 years is:

PV= $14,036,838/(1 + .0608)20

First PV = $4,315,09

Question: How did it reach to this conclusion?