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Forestry provides two types of long term benefits:- Wood benefits; timber, poles, thinnings Non-Wood benefits; environmental protection, wildlife habitat, land restoration, recreational environment. Both these benefits can span a lifetime of over 50 years. | Chapter 10: Case Study in Financial Modeling and Simulation of a Forestry Investment Investment in forestry as an example of capital budgeting techniques applied to long term projects. Introduction Forestry provides two types of long term benefits:- Wood benefits; timber, poles, thinnings Non-Wood benefits; environmental protection, wildlife habitat, land restoration, recreational environment. Both these benefits can span a lifetime of over 50 years. Cash Flow Structure General for Projects Particular to Forestry initial cash outlay long term maintenance inflows from sale of product timed on-going outlays:- thinnings, maintenance, income- poles or timber? income – time of harvest? Cash Flow Forecasting Cash flow prediction over a long horizon is difficult. Investment Evaluation Criteria The Land Expectation Value(LEV) model is applied in preference to the NPV model. Modeling Forestry Investment Key Parameters in Forestry Models Establishment:- land, land preparation, plant . | Chapter 10: Case Study in Financial Modeling and Simulation of a Forestry Investment Investment in forestry as an example of capital budgeting techniques applied to long term projects. Introduction Forestry provides two types of long term benefits:- Wood benefits; timber, poles, thinnings Non-Wood benefits; environmental protection, wildlife habitat, land restoration, recreational environment. Both these benefits can span a lifetime of over 50 years. Cash Flow Structure General for Projects Particular to Forestry initial cash outlay long term maintenance inflows from sale of product timed on-going outlays:- thinnings, maintenance, income- poles or timber? income – time of harvest? Cash Flow Forecasting Cash flow prediction over a long horizon is difficult. Investment Evaluation Criteria The Land Expectation Value(LEV) model is applied in preference to the NPV model. Modeling Forestry Investment Key Parameters in Forestry Models Establishment:- land, land preparation, plant stock, planting, watering. Maintenance:- weed control, fertilizing, pruning and thinning, fire and pest protection. Inflows:- wood; commercial thinning, final harvest non-wood; flora gathering, recreation, land renewal. Required rate of return. Forest Yield Factors Wood growth is measured by the MAI: Mean Annual Increment; ‘the annual increase in cubic meters of harvestable timber per hectare’. The MAI is influenced by- relevant rainfall, soil fertility, species mixture, planting régime, crop protection. Final monetary payoff is influenced by- harvest age, species type, timber price. Forestry Risks 1 Establishment: drought, weeds Production: storm, fire, pests and diseases, unsuitable species, collateral damage at harvest. Forestry Risks 2 Timber return: inappropriate pruning and thinning, poor growth, timber usage and fashion changes. Sovereign risk: regulatory changes, taxation changes, uncertain harvest rights. Predicting Cash Flows 1 The key growth indicator is the .
