Arundel Partners Is Taking Under Term Paper

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if, hypothetically speaking this number is 100 trees for each option, the cumulated value of both options is:

PV5 option 1 + PV5 option 2) * 100 = (21.6 + 20.78) * 100 = 4,237.9

PV10 option 1 + PV10 option 2) * 100 = (23.47 + 21.62) * 100 = 4,507.6

The comparison's results suggest that cutting the trees after 10 years maximizes the Mr. Smith's tree value. It also seems that the tree value is increasing in time and the growth rate is increasing in time, which implies that the more Mr. Smith can wait before cutting the trees the higher their value will be at the cutting moment.

Thinning the forest will lower their total value. However, the thinning will also relieve the cost burden. Assuming that Mr. Smith cuts half of the forest growing according to option 2, the total tree value in:

year will be PV5 option 1 * 100 = 2,160

10 years PV10 option 1 * 100 = 2,347

The owner will have to deduct the costs incurred with the forest to find the net value of its trees.

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Mr. Smith should not suffer any loss, because he cut the half of the forest with a slower growth rate, assuming that the tree cost reduction more than compensates for the loss of value incurred while cutting half of the trees earlier than the optimal moment.

Mr. Smith has to manage its forest in such a manner that maximized its value over years. Thus, the best way to find this method is by comparing the costs generated by each option or a combination of options, deduct those costs from the gross value generated by each option or combination of options and see which choice generates the highest outcome. Just by looking at the gross values generated by each option, we can see that option 1 is more efficient. In the absence of forest-related costs, the best tree management strategy would be….....

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