Bunyan_Lumber

According to my calculations, Bunyan Lumber should harvest their forest in 25 years and should do so every 45 years. They gain the most profit from harvesting in 25 years when the forest will be 45 years mature. The specs for this project are as follows: Number of acres 7500 Inflation rate 3.7% Nominal required return 10% Current logging cost per MBF $160.00 Road construction cost per MBF $60.00 Sales and administrative costs per MBF $21.00 Excavator piling per acre $160.00 Broadcast burning per acre $305.00 Site preparation per acre $155.00 Planting costs per acre $240.00 Conservation contribution today $250,000.00 Conservation contribution growth rate 3.2% The total MBF for each scenario is found by multiplying the amount per acre by the total acres while factoring in the 5% loss of timber due to defects and breakage. After calculating the amount of MBF per percentage, you find the total price of each by multiplying it by the price per MBF making sure to factor in the yearly inflation rate. The revenue at the time of logging is figured by computing the total MBF by the total price. In order to obtain the revenue at the time of planting includes factoring in the time since planting, as well as the 10% discount rate. Total revenues for all four scenarios are as follows: Harvest time MBF / acre Total MBF 1P % 2P % 3P % 1P 2P 3P 40 6 42750 10% 40% 50% 4275 17100 21375 45 8.2 58425 13% 46% 41% 7595 26876 23954 50 9.4 66975 17% 48% 35% 11386 32148 23441 55 10.5 74812.5 19% 51% 30% 14214 38154 22444 Continued: 1P Price 2P Price 3P Price Total Revenue @ Logging Total Revenue @ Planting $2,378 $2,047 $1,737 $82,311,578 $1,818,668 $2,852 $2,455 $2,083 $137,553,331 $1,887,123 $3,420 $2,944 $2,498 $192,162,081 $1,636,943 $4,102 $3,531 $2,996 $260,263,576 $1,376,625 The variable costs per MBF are calculated by multiplying the cost per MBF by the amount of MBF while also factoring in the inflation rate and difference between planting and logging time. The variable costs per acre are calculated the same way only multiplying by acres. Adding those total amounts together give us the total cost at logging, but we find the total cost at the start of planting by factoring in the 10% discounted rate and the difference between the planting and logging time. Total costs for all four scenarios are as follows: Harvest time Logging Road System Sales/Admin Piling Burning 40 $14,145,921 $5,304,720 $1,856,652 $2,481,741 $4,730,818 45 $23,183,960 $8,693,985 $3,042,895 $2,976,118 $5,673,225 50 $31,870,978 $11,951,617 $4,183,066 $3,568,979 $6,803,365 55 $42,692,405 $16,009,652 $5,603,378 $4,279,940 $8,158,636 Continued: Site Prep Planting Conservation Total Cost @ Logging Total Cost @ Planting $2,404,186 $3,722,611 $469,390 $35,116,039 $775,886 $2,883,114 $4,464,177 $549,455 $51,466,929 $706,086 $3,457,448 $5,353,468 $643,178 $67,832,099 $577,831 $4,146,192 $6,419,911 $752,886 $88,063,001 $465,796 Net present value needs to be calculated by using the projected revenues and costs associated with the time of planting. The net present values of each scenario, as follows, show that 25 years from now is the best time to log. When to Log from Now NPV 20 $1,042,782 25 $1,181,038 30 $1,059,111 35 $910,829