PINE TIMBER INVESTMENT -- DISCOUNTED CASH FLOW ANALYSIS Assumptions 1. Purchase clearcut land at $500/acre -- all land is productive 2. Site prepare and plant @ $180/acre 3. Thin years 14, 24, and harvest year 35 - - Management is for Sawtimber production 4. Sell land year 35 5. Timber prices today PPW (Pine Pulpwood) $8/cord SST (Small Sawtimber) $220/MBF (thousand board feet) LST (Large Sawtimber) $300/MBF 6. Prices Increase Annually at 3% 7. Recreation Income (Hunting) at $7/acre and increases annually at 3% 8. Management fee at $3/acre and increases annually at 3% 9. Taxes at 20% 10. Discount rate of 8% 11. Volumes cut Year 14 8 cords/acre Year 24 2.5 MBF and 6.4 cords/acre Year 35 11 MBF and 4 cords/acre Using the above assumptions, the IRR (internal rate of return) for the investment is 9.01% Test 1 Decrease PPW prices to $2/cord IRR is 8.85% Test 2 Increase PPW prices to $20/cord IRR is 9.32% Test 3 Delay cut for 2 years IRR is 8.73% Test 4 Delay cut for 3 years IRR is 8.42% |