1. Suppose you are considering purchasing bare land today that is surrounded by forest for the purpose of growing timber and harvesting in 50 years. Suppose we plant next year (year 1) and harvest in year 50. In addition to harvest, as the stand grows there are other benefits and costs the management plan generates, such as impacts to species habitat, water quality, carbon credits and taxes. Suppose these can be monetized. Values are given in the Excel spreadsheet posted on Bblearn. For species, the initial absence of trees creates what is called edge habitat. Edge makes good forage for large animals such as deer, elk or owls. As the stand grows, the canopy becomes dense and the edge disappears. But as the trees grow taller, different habitat forms that supports other creatures. Water quality is initially diminished due to run off and lack of shade to hold water on site longer. However, water quality improves with stand age. Carbon credits are funds received by the owner for maintaining the land as forest, and taxes are paid annually and as a percentage of total profit at harvest. With a required rate of return of 7%, what is the most you would pay for this parcel of land today?
Numeric Response=
2. Private discount rates are larger than social discount rates due to taxes and uncertainty of private firms lasting for long periods of time. Revisit Question #1 and recompute the value of the land using a discount rate of 13% (this is similar to that used by private forestry companies). What is the most you would be willing to pay for this parcel today? Note that the value of the land depends heavily on the discount rate, and benefits and costs received farther in the future are valued less by the private sector than the government.
Numeric Response=
problem data year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 planting -500 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -500 harvest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 250000 species 20 20 20 20 15 15 10 5 0 0 -5 -10 -10 -10 -15 -15 -15 -15 -15 -10 -10 0 0 0 10 10 10 10 10 20 20 20 20 20 25 25 25 25 25 30 30 30 30 30 35 35 35 35 35 0 water quality -20 -20 -20 -20 -20 -20 -20 -20 -20 -10 -10 -10 -10 -10 -10 -10 -10 -10 -10 -10 -5 -5 -5 -5 0 0 0 0 0 5 5 5 5 5 10 10 10 10 10 10 10 10 10 10 20 20 20 20 20 0 carbon credits 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 taxes -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -25005.