You are managing a block of land for a private investment firm and it currently yields 160 m³/ha of standing timber. The management team uses an 8% IRR to evaluate decisions. The trees can be sold for Christmas trees today with an average stumpage value of $8/m³. If left untreated it will grow at a rate of 1.2 m³/ha per year. At that rate it will take 10 years to reach the minimum size to sell for pulpwood. Selling to the mill for pulpwood will net you $11/m³ per year. It will take 20 years to reach the minimum diameter required by the sawmill who will pay $15/m³. Applying fertilizer to the stand will increase the annual growth rate to 3 m³/ha per year. The cost of the fertilizer is $ 1,000 per hectare. In 5 years the stand will reach minimum diameter for pulpwood. In 10 years it reach the minimum diameter required by the sawmill. 

The sawmill pays a premium for large diameter logs, it take 15 years to reach size class II that the mill pays $19.50/m³ for larger diameter logs. 

The veneer mill pays $23/m³ for peelers but it will take 20 years after fertilization to reach the size required. What is the best choice? Harvest now, harvest later or fertilize and harvest?

Answer rating: 100% (QA)

ANS WER The best choice would be to fertil ize and harvest The increased growth rate of 3 m 3 ha p... View the full answer