Financial analysis of growing koa High present costs Revenues far in the future Markets changing.
Post on 27-Dec-2015
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Discounting: The time value of money
• $100 at 5% compound interest will be worth $704 in 40 years
$0
$200
$400
$600
$800
0 10 20 30 40
Discounting: The time value of money
• $10,000 in 40 years at 5% discount is worth only $1,420 today
$0$2,000$4,000$6,000$8,000
$10,000
0 10 20 30 40
Years into future
Calculate Net Present Value
• Add up anticipated costs and revenues for each year
• Discount each year’s total back to present• Total • Positive? Go!• Negative? You’ll lose money
Real Interest/Discount Rate + Inflation = Nominal Interest Rate
• 5% real rate + 3% inflation = 8% nominal rate
• Nominal rate is what most other investments advertise
• Either put inflation into all calculations, or leave it out
Internal Rate of Return and
Net Present Value: Two sides of the same coin
• IRR is discount rate when NPV = 0
• Can use either to compare different projects
Stumpage: the value of timber as it stands, uncut
• Value of the lumber less harvesting and processing costs
• Lumber = $15/board foot
• Stumpage = $5/board foot ???
Stumpage values
depend on
• Individual buyer and seller
• Markets• Access to site• Quantity of timber• Quality of timber• Efficiency of
harvesting operation
Difficulty of predicting market values: koa stumpage ($/mbf)
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000
1970 1980 1990 2000 2010
High estimate
Low estimate
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