Davit Tsulukidze Viktoria Katsyzna Vitali Ivasenka Tree Values 10.11.2018

Current prices for crop trees ranged between 40-845$ per MBF; Case background Joe Smith, Forest Owner got an attractive offer from a local businessman for some of his timber. The logger proposed Mr. Smith to cut trees 12’’ DBH and larger (1.3 m above ground level; Current prices for crop trees ranged between 40-845$ per MBF; Trees Smaller than 12’’ DBH had little commercial value except as firewood; Similar size trees could provide same board feet of lumber but due to the grade of that lumber, their value could be very different; According to estimates, prices of hardwood timber had steadily increased and would likely to continue so. Currently prices were increasing 1-3% above the rate of inflation.

Exhibit 1: Average Hardwood Volumes DBH (Inches) Board Feet/Tree 10 20 11 40 12 60 13 85 14 110 15 145 16 180 17 230 18 280 19 315 350 21 385 22 430

Exhibit 2: Average Hardwood Stumpage Prices by Tree Grade Case background Exhibit 2: Average Hardwood Stumpage Prices by Tree Grade Tree Grade $ MBF 4 40 3 120 2 260 1 445 Veneer 845

Most of the trees are 50-60 years old and have tree grade 4; Case background Most of the trees are 50-60 years old and have tree grade 4; Mr. Smith’s forestland is 40 acres (161874 square meters); Crop trees: about 60 trees per acre, evenly divided between 12’’ DBH and 14’’ DBH; Thinning would allow the better quality trees grow 2’’ in diameter over 10 years and possibly move to the next tree grade.

Case background Exhibit 3: Probabilities of tree grade increases with each 2’’ growth in DBH Tree Grade Change 4 to 3 3 to 2 2 to 1 1 to Veneer Unthinned, unmanaged forestland 60% 50% 40% 10% Thinned, managed forestland 80% 70% 20%

Cut and sell all trees now Alternatives Cut and sell all trees now No management of the forest; cut and sell all trees later Managing the forest a) Cut all 12” trees now, let 14” to grow b) Cut all 14” trees now, let 12 “ to grow c) Cut half of 12'' and half of 14'' trees of lower quality

Discount rate: rate of inflation 1% + increase in lumber prices 2% Assumptions Discount rate: rate of inflation 1% + increase in lumber prices 2% Grade of the tree vs size, inch starting from year 1 DBH Grade 12 4 13 14 3 15 16 2 17 18 1 19 20 Veneer

Results (PV) Year/ Case 10 20 30 40 50 1 8160 2 11679 14909 17600 19607 18426 3a 32196 48376 45151 3b 15494 27093 39133 40234 32003 3c 19616 61020 107987 125310

Results Graph

Summary and Conclusions Our task included to decide whether Mr. Smith had to accept logger’s offer or not; Alternative solutions have been proposed and by setting assumptions all alternatives have been numerically evaluated; Our calculations lead to conclusion that for proper forest management Mr. Smith has to cut half of 12’’ and half of 14’’ low quality trees.

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