Lecture_11_ - 2-1Lecture#11Mini Case: BUNYAN LUMBER,...

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Unformatted text preview: 2-1Lecture#11Mini Case: BUNYAN LUMBER, LLC2-2DataThe 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 40-, 45-, 50, and 55-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 cash flows.The real required return on the project is:1/(1 + r) = (1 + h)/(1 + R) (1 + R) = (1 + r)(1 + h)r =2-3DataTotal acreage5,000 Years since original planting20 Cash flow/acre from thinning$ 1,000 Timber GradeYears from today for harvestto beginHarvest in thousand of Board Feet(MBF)per acre1P2P3P$ 660 $ 630 $ 620 2014.116%36%48%2516.420%40%40%3017.322%43%35%3518.124%45%31%2-4DataDefect rate5%Tractor cost (MBF)$ 140 Road (MBF)$ 50 Sale preparation and and administrative (MBF)...
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Lecture_11_ - 2-1Lecture#11Mini Case: BUNYAN LUMBER,...

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