1. Suppose you are in charge of a forestry operation in the Pacific Northwest. Trees on your property grow according to the table below (which relates time to timber volume). This type of timber sells for $2 per board foot in the market, clearing your land will cost you $450 (regardless of the volume when you clear) and your land is worth $850 when cleared. The market interest rate is 12%.

T Volume (Year): 1, 2, 3, 4, 5, 6

(Board feet) : 150, 300, 650, 800, 900, 1000

(a) What is the optimal (profit maximizing) year to cut your trees? What is the present value of the profits earned in that year?

(b) Find the rotation age that maximizes average annual yield (tMSY )

(c) Suppose a developer offered you $1,500 for your land today (with the trees on it). Should you sell your land or keep it, and harvest timber at the optimal time, and sell your land for the $850 it is worth after the rotation?

(d) Suppose a local mountain biking association offered to pay you and annual amount to keep the trees standing on your land (because they like mountain biking on trails with the trees). What is the minimum amount they would offer you to choose to delay your harvest until year 5, rather than the year you found in part (a)?