1. Consider a forest with 100,000 tons of standing timber and a growth rate of 4500 tons of additional biomass per year. Assume the price of timber is $120 per ton and an interest rate of 4%.
   1. What is the value of the forest if it is clear cut? Show and explain your work.
   2. What would be the present value of the timber under a sustainable yield management approach? Show and explain your work.
   3. What would be the present value of the sustainable yield harvest if the interest rate was 6%? Show your work.
   4. What approach to forest management would you recommend under each interest rate scenario?
   5. In class we developed a “marginal benefit of harvesting” and “marginal cost of harvesting” equation and diagram to establish a principle for optimal harvest rotation. Use this diagram to explain what is happening to the optimal harvest rotation in this scenario when the interest rate increases from 4% to 6%. (You do not need to use actual numbers—just reflect the change in the diagram and provide an explanation.)
   6. Consider the optimal harvest rotation model. Use the model to show what would happen to the optimal harvest rotation if the stand of timber was found to be habitat for an endangered and protected species. Explain.

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