Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Accounting Basics Expert

Bunyan Lumber, LLC, harvests timber and delivers logs to timber mils for sale. Company was founded 70 years ago by Pete Bunyan. Present CEO is Paula Bunyan, granddaughter of founder. Company is prsently estimating  7,500 acre forest it owns in Oregon.  Paula has asked Steve Boles, company's finance officer, to estimate the project.  Paula's concern is when company must harvest timber.

Lumber is sold by company for it "pond value".  Pond value is amount a mill will pay for log delivered to mill location. Price paid for logs delivered to mill is quoted in dollars per thousands of board feel (MBF), and price depends on grade of logs. Forest Bunyan Lumber is estimating was planted by company 20 years ago and is made up completely of Douglas fir trees.  Table given below illustrates the present price per MBF for three grades of timber company feels will come from stand.

TIMBER GRADE

PRICE PER MBF

1P

$1,150

2P

$ 990

3P

$ 840

Steve believes that pond value of lumber will increase at inflation rate. Company is planning to thin forest today, and it expects to realize positive cash flow of $1,200 per acre from thinning. Thinning is done to increase growth rate of the remaining trees, and it is always done 20 years following a planting.

Major decision company faces is when to log forest.  When company logs forest, it will immediately replant saplings, which will permit for future harvest. Longer forest is allowed to grow, larger the harvest becomes per acre.  In addition, older forest has higher grade of timber. Steve has compiled following table with expected harvest per acre in thousands of board feet, along with breakdown of timber grade.

YEARS FROM TODAY TO BEGIN HARVEST

HARVEST (MBF) PER ACRE

TIMBER GRADE

 

 

1P

2P

3P

20

6

10%

40%

50%

25

6.2

13

46

41

30

9.4

17

48

35

35

10.5

19

51

30

Company expects to lose 5% of timber it cuts due to defects and breakage.

Forest will be clear-cut when company harvests timber. This method of harvesting permits for faster growth of replanted trees. All of the harvesting, processing, replanting, and transportation are to be handled by subcontractors hired by Bunyan Lumber.  Cost of logging is expected to be $160 per MBF.  Road system has to be constructed and is expected to cost $60 per MBF on average. Sales preparation and administrative costs, excluding office overhead costs, are expected to be $21 per MBF.

As soon as harvesting is complete, company will reforest land.  Reforesting costs comprise the following:

 

PER ACRE COST

Excavator piling

$ 160

Broadcast burning

$ 305

Site preparation

$ 155

Planting costs

$240

 All costs are expected to increase at inflation rate.

Suppose all cash flows happen at year of harvest.  For ex, if company begins harvesting the timber 20 years from today, cash flow from harvest will be received 20 years from today. When company logs land, it will immediately replant land with new saplings.  Harvest period selected will be repeated for foreseeable future. Company's nominal required return is 10%, and inflation rate is expected to be 3.7% per year.  Bunyan Lumber has a 35% tax rate.

Clear-cutting is controversial method of forest management. To get the essential permits, Bunyan Lumber has agreed to contribute to conservation fund every time it harvests lumber.  If company harvested forest today, the required contribution would be $250,000. Company has agreed that required contribution will grow by 3.2% per year.  When must the company harvest forest?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M917823

Have any Question? 


Related Questions in Accounting Basics

Assignment1 government entity ccr 2 government entity power

Assignment 1.) Government Entity CCR 2.) Government Entity Power Point presentation Refer to www.agacgfm.org for information on the CCR. A CCR is a 4 page document summarizing information and creating a presentation for ...

After reading the article ernst amp youngs liability for

After reading the article "Ernst & Young's Liability for Lehman Larger Than Claimed," Discuss Ernst & Young's "going-on" liability after their 2007 arbitrary cutoff of responsibility from Lehman Brothers financial statem ...

Part 1royal oak taxation advisory service has the following

PART 1 Royal Oak Taxation Advisory Service has the following transactions for the month of December 2016 : Dec. 1 Commenced business by depositing $50 000 in a bank account in the name of the business 2 Bought a vehicle ...

1 several years ago courtney borrowed 100000 from the

1) Several years ago, Courtney borrowed $100,000 from the Friendly Local Bank and used it to buy an apartment building. Courtney has not been able to rent any of the apartments in the building and has not made any princi ...

Please see the list of stock from a virtual game that

Please see the list of stock from a virtual game that student invested during the period Sep 2016- Dec 2016. The returns are shown as well. Please use this information to write a report 2-4 pages about the project. Your ...

Culturally diverse individuals are effective workerssuppose

Culturally Diverse Individuals Are Effective Workers Suppose you work as a human resource (HR) executive at Total Solutions, Inc., a culturally and geographically diverse organization. A recent government study on human ...

Assignmentuncollectible accountsusing your text and at

Assignment Uncollectible Accounts Using your text and at least one scholarly source, prepare a two to three page paper (excluding title and reference page), in APA format, on the following: • Explain the difference betwe ...

To understand the accounting equation and its

To understand the accounting equation and its elements QUESTION Mr. "A" starts a new business. Before to start the business operation, he has purchased vehicle Rs. 1,500,000, office premises Rs. 3,000,000, stock of goods ...

Discussion questions 1 and 2dq 1accounting cyclefinancial

Discussion Questions 1 and 2 DQ #1:Accounting Cycle Financial statements are a product of the accounting cycle. Think about two different companies: a manufacturing company, and a retail company. Why would different comp ...

Q1 in each of the following independent situations

Q1: In each of the following independent situations, determine how much should be included in Burton's gross estate less than 2042 as to the various life insurance policies involved. Assume that none of the policies are ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro