Tree Values Introduction: Mr.

Smith was a person who owns a forest land which was inherited by his father.He was only interested for his land to be is his asset, beside that he checked on prices of land in that area. The value of his land was increased by some of the trees that were high quality timber. Ms Bennett was a specialist who helps him in suggesting and to make decision whether to cut the trees presently of not. Logger was interested in timber and proposed Mr. Smith to cutting the trees that were 12 DBH. As timber was a high volume business the prices for standing timber were in dollar per thousand MBF. Value of trees depends on (i) Usable timber (ii) trees Quality / grade. The trees which were above 12 DBH and 60 Board feet were consider good and value worth, but below 12 the wood was not of commercial value. The case presents information to estimate the cash flows for each alternative. After estimating the corresponding cash flows, we will have the opportunity to use discounted cash flow techniques to decide when to cut trees under each strategy and to select which strategy maximizes the value of the forest. Trees growing rate In the New England was: Good quality hardwood grows 2 in diameter in 10 years .Inferior quality grows in diameter in 10 years. Further tree value also depended on Increase in timber prices i.e. Price increased over last 20 years steadily and likely to continue. Currently increasing 1-3% above rate of inflation. There were 300 trees per acre on property. Ms. Bennetts Estimates: In 40 acres of land there were about 60 crops tree per acres, which were evenly divided into 12 and 14. There were mostly grade 4 trees according to size &conditions. Ms. Bennetts Suggestions: ( i ) He should consider thinning cutting about half of the 12 and 14trees. This will allow to grow 1 in diameter in 5 years. Situations for Cutting Trees :1-Cutting the trees that were 12 DBH 2-Leave the unwanted crops to grow in future and cut the less desired trees. Data for valuing tree with respect to forest industry: 1 - N P V 2-Rate of inflation 3-Growth rate In order to choose the best offer, the amount of payment in each offer is discounted to present at the discount rate of 10%. This is just a basic discounting problem, using the formula PV=FV(1+ r ) t In this formula, FV is the amount of payment, r is the discount rate , t is the number of years from now in each offer.

Total Area of forest Land 40 acres Combine total of trees 60 Includes 12 DBH 30 Includes 14 DBH 30

Grades for the trees with respect to 12 and 14is grade 4 The probability of growing trees according to grade is Tree Grade - 4 to 3 Trees Unthinned , unmanaged forest land - 60 % Trees thinned , managed Forestland 80 %

Ms. Bennetts Suggestions: Thinning cutting about half of the 12 and 14 trees. This will allow to grow 1 in diameter in 5 years. As per Exhibit Two Now we will consider according to the knowledge which we have gathered by going through this case analysis there are two situations for cutting trees as mentioned above which was suggested by Ms. Bennett i.e. 1-Cutting the trees that were 12 DBH 2-Leave the unwanted crops to grow in future and cut the less desired trees. Now we will consider the above two suggested situations and see which one is desirable and valuable for maximization profit by cutting trees. Conclusion: Mr. Smith now can easily determine that what value he will get in future by cutting trees of 12 & 14 DBH. On our calculation it can clearly be seen that if Mr. Smith allows logger to cut all the trees of 12 and 14 presently then he will get a good amount but if he let them grow and thinning done properly and managing them after 5 years the trees will go to increase their grade with greater productivity and handsome amount. So the best option for Mr. smith is to cut the trees after 5 years and for now use the unmanaged , un thinned wood and sale them for the use of fire purpose.