You are looking to buy a tract of land for plantation management. You find two available pieces of land in the region. All thinnings will produce pulpwood. Use the following information to answer the questions.
Tract #1
Current age of Rotation: 27 years
Planting Costs: $125/acre
Tax and Management Fees: $8/ac/yr
Thinning Volume (age 18): 51.38 tons/acre
Thinning Volume (age 25): 96.3 tons/acre
Thinning Cost (age 18 & 25): $300/acre
Final Harvest Volume (age 35): 29.8 MBF/acre
Final Harvest Cost: $600/acre
Time of Harvest Pulp Price: $16/ton
Time of Harvest Sawtimber price: $448/MBF
Discount Rate: 8%
Total Acreage: 850 acres
Listing Price: $6,325,000
Tract #2
Current age of Rotation: 29 years
Planting Costs: $85/acre
Tax and Management Fees: $7/ac/yr
Thinning Volume (age 18): 22.67 tons/ac
Thinning Volume (age 25): 80 tons/ac
Thinning Cost (age 18 & 25): $400/ac
Final Harvest Volume (age 35): 32.5 MBF/ac
Final Harvest Cost: $350/acre
Time of Harvest Pulp Price: $12/ton
Time of Harvest Sawtimber Price: $478/MBF
Discount Rate: 8%
Total Acreage: 700 acres
Listing Price: $6,700,000
A) Which tract has a higher land value? Why?
B) Which piece of land is the better deal? Why? (Hint: Consider the standing timber in addition to the land to evaulate the seller's estimation of value)
C) Which piece of land would you buy and why?