1. Davit Tsulukidze Viktoria Katsyzna Vitali Ivasenka
Tree Values

2. 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 $ 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.

3. 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

4. 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

5. Most of the trees are 50-60 years old and have tree grade 4;
Case background
Most of the trees are years old and have tree grade 4;
Mr. Smith’s forestland is 40 acres ( 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.

6. 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%

7. 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

8. 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

9. 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

10. Results Graph

11. 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.

12. THANK YOU FOR YOUR ATTENTION!!!
Tree Values
THANK YOU FOR YOUR ATTENTION!!!