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The company is faced with the option of when to harvest the lumber. Whatever harvest cycle the company chooses, it will follow that cycle in perpetuity. Since the forest was planted 20 years ago, the options available in the case are, 50, and year harvest cycles.
No matter what harvest cycle the company chooses, it will always thin the timber 20 years after harvests and replants. The cash flows will grow at the inflation rate, so we can use the real or nominal cash flows. In this case, it is simpler to use real cash flows, although nominal cash flows would yield the same result.
So, the real required return on the project is: The cash flow from the thinning process is: These costs are the same no matter what the harvest schedule since they are based on acres, not MBF.
Now we can calculate the cash flow for each harvest schedule. One important note is that no depreciation is given in the case. Since the harvest time is likely to be short, the assumption is that no depreciation is attributable to the harvest. This implies that operating cash flow is equal to net income.
Now we can calculate the NPV of each harvest schedule. The effective year interest rate for the project is: The value of these deposits in 20 years is: The present value of these deposits is: Notice that when the NPV began to decline, it continued declining.
This is expected since the growth in the trees increases at a decreasing rate. So, once we reach a point where the increased growth cannot overcome the increased effects of compounding, harvesting should take place.
There is no point further in the future which will provide a higher NPV.
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Please Help with Homework Question 1 Solution: The company is faced with the option of when to harvest the lumber. Whatever harvest cycle the company chooses, it will follow that cycle in perpetuity.
Bunyan Lumber, LLC Closing Case: When should the company harvest the forest?
Bunyan Lumber, LLC Closing Case: When should . Bunyan Lumber, LLC, harvests timber and delivers logs to timber mills for sale. Bunyan Lumber, LLC Closing Case: When should the company harvest the forest?
managerial finance Bunyan Lumber, LLC, harvests timber and delivers logs to timber mills for sale. The company was founded 70 years ago by Pete Bunyan. The current CEO is Paula Bunyan. Bunyan Lumber, LLC: Closing Case Bunyan Lumber, LLC, harvests timber and delivers logs to timber mills for sale.
The - Answered by a verified Tutor. Bunyan Lumber Case Solution Case Solution,Bunyan Lumber Case Solution Case Analysis, Bunyan Lumber Case Solution Case Study Solution, Bunyan Lumber Case Solution The business Bunyan Lumber LLC harvest lumber then provide logs to lumber mills to become offered.
The umber that is offered by. We would like to show you a description here but the site won’t allow us.