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Financial Analysis for Forest Financial Analysis for Forest yResource Managers

yResource Managers

J O’L hli Ph DJay O’Laughlin, Ph.D.Professor of Forestry & Policy Sciences

Director of the Policy Analysis GroupC ll f N t l RCollege of Natural Resources

University of Idaho(208) 885-5776; jayo@uidaho.edu

www

Handout – Outline & Example Problems

NOTE: Revised version, Feb. 13, 2012

Handouts – References

Handouts – References

O’Laughlin & Cook (2001, p. 3)

Handouts – Process Diagram & Formulae

OUTLINE

OUTLINE

Financial analysis step-by-step

Most Difficult

More Difficult

E iEasier

OUTLINE

Forestry investment return components

Timber growth

Forestry investment return components

Timber growthStumpage price increaseStumpage price increase

Douglas-fir, average Puget Sound region prices, 1970 2004 (adjusted for inflation in 2002 dollars)1970-2004 (adjusted for inflation in 2002 dollars).

Zobrist (2005, p. 9)

Forestry investment return components

Timber growthStumpage price increaseStumpage price increaseLand value increaseLand value for growing timber may be calculated using a compound interest formula. Increasing that value for future land use change is highly speculative and problematic.

The Land Expectation Value (LEV) represents the maximum additional outlay that could be made at the beginning of the rotation for the actual purchase of the land while still earning p gthe target rate of return on the total investment. Thus LEV is also considered the maximum willingness to pay for land for forestry use given management expectations (Zobrist 2005, p.7).

OUTLINE

Formulae . . .

Financial calculator . . .

Spreadsheet . . .

OUTLINE

Examples: Site index 70

Yield table: naturally generated

Yield table: naturally generated

Yield table(s): Douglas-fir plantations

2. The landowner has an objective to maximize long-term financial returns from sustainable timber management She has heard thatmanagement. She has heard that Douglas-fir plantation manage-ment may be a good choice. After calculating the tree growthAfter calculating the tree growth rates for the four management alternatives (Sheets 3-6) and assuming a final harvest in year g y80, which alternative may be best? Sheet ____

Yield table(s): Douglas-fir plantations

2. The landowner has an objective to maximize long-term financial returns from sustainable timber management She has heard thatmanagement. She has heard that Douglas-fir plantation manage-ment may be a good choice. After calculating the tree growthAfter calculating the tree growth rates for the four management alternatives (Sheets 3-6) and assuming a final harvest in year g y80, which alternative may be best? Sheet ____

Yield table(s): Douglas-fir plantations

2. The landowner has an objective to maximize long-term financial returns from sustainable timber management She has heard thatmanagement. She has heard that Douglas-fir plantation manage-ment may be a good choice. After calculating the tree growthAfter calculating the tree growth rates for the four management alternatives (Sheets 3-6) and assuming a final harvest in year g y80, which alternative may be best? Sheet ____

Yield table(s): Douglas-fir plantations

2. The landowner has an objective to maximize long-term financial returns from sustainable timber management She has heard thatmanagement. She has heard that Douglas-fir plantation manage-ment may be a good choice. After calculating the tree growthAfter calculating the tree growth rates for the four management alternatives (Sheets 3-6) and assuming a final harvest in year g y80, which alternative may be best? Sheet ____

OUTLINE

Land and timber valuation

Zobrist (2005, p. 7)

Land Expectation Value (LEV = SEV)

Zobrist (2005, p. 7)

Formulae . . .

Problem 3 . . .

Problem 3 . . .

Problem 3 . . .

Zobrist (2005, p. 10)

OUTLINE

Problem 4 . . .

OUTLINE

X

Financial Analysis for Forest Financial Analysis for Forest yResource Managers

yResource Managers

J O’L hli Ph DJay O’Laughlin, Ph.D.Professor of Forestry & Policy Sciences

Director of the Policy Analysis GroupC ll f N t l RCollege of Natural Resources

University of Idaho(208) 885-5776; jayo@uidaho.edu

www