18 Mar Making Investment Decisions with The Net Present V
Making Investment Decisions with The Net Present Value RuleYou own 500 acres of timberland, with young timber worth $40,000 if logged now. This represents 1,000 cords of wood worth $40 per cord net of costs of cutting and hauling. Apaper company has offered to purchase your tract for $140,000. Should you accept the offer? You have the following information: Yearly Growth Rate Years of Cords per Acre 1-4 16% 5-8 11 9-13 4 14 and subsequent years 1 You expect price per cord to increase at 4 percent per year indefinitely. The cost of capital is 9 percent. Ignore taxes. The market value of your land would be $100 per acre if you cut and removed thetimber this year. The value of cut-over land is also expected to grow at 4 percentper year indefinitely.
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