Financial analysis of growing koa High present costs Revenues far in the future Markets changing

Discounting: The time value of money $100 at 5% compound interest will be worth $704 in 40 years

Discounting: The time value of money $10,000 in 40 years at 5% discount is worth only $1,420 today

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

When to harvest? Rotation length is an economic decision

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) High estimate Low estimate

Koa wood quality, thus stumpage value, increases with age

Taxes Income taxes –Cost-share programs –Timber harvests: capital gains – Property taxes –Tree farms –Native forest Inheritance taxes –Conservation easements