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Bunyan Lumber, LLc, harvests timber and delivers logs to timber mills for sale. The finance officer has been askedto evaluate the project concerned...

Bunyan Lumber, LLc, harvests timber and delivers logs to timber mills for sale. The finance officer has been askedto evaluate the project concerned with when the company should harvest the timber. Lumber is sold by the company for its "pond value". Pond value is the amount a mill will pay quoted in (MBF) per thousand of board feet. The price depends on the grade of the logs. Bunyan Company logs were planted 20 years ago. The table shows that Bunyan expect to receive:
Timber Grade Price Per MBF
1p $1,150
2P 990
3P 840
The finance officer believes that the pond value of lumber will incease at the inflation rate. The company is planing to thin the forest and is expected to realize positive cash flow of $1,200 per acre from thinning. This has always been done over the past 20 years and improves the quality of future tree growth. The major decision is when should the company log the forrest? When the company logs the forrest it will immediately replant saplings. The longer the forest is allowed to grow thelarger the harvest becomes per acre. Also older forest has a higher grade of timber. The table shows the expected harvest per acrea and timber grade breakdown:
Years MBF per acre Grade 1p 2p 3p The company expects to lose 5% of what it plants.The cost of the logging is expected to be $160 per MBF. A road system will cost $60 per MBF other cost are $21 per MBF. As soon as the harvesting is complete the company will reforest the costs are:
Per Acre
Excavation $160
Broadcast burning 305
Site pre 155
planting 240
All costs are expected to increase at the inflation rate. The company's nominal required return is 10% and the inflation rate is expected to be 3.7% the tax bracket for the company is 35%. The company permits and required contribution amount is $250,000 and expected to grow by 3.2% per year. When should the comapny harvest the forest?
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CH250410_481679_FIN.xls

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Bunyan Lumber, LLc, harvests timber and delivers logs to timber mills for sale. The finance officer has been askedto evaluate the proje
company for its "pond...

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