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2. A forestry firm is planning a single harvest on privately-owned land. The firm asks if you would help them determine the optimal harvest age

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2. A forestry firm is planning a single harvest on privately-owned land. The firm asks if you would help them determine the optimal harvest age of their stand of trees. You are given data for future harvests at three different time periods: 60, 70, or 80 years. (37 points) 70 80 Age of Stand Volume harvested (m?) Timber price at time of harvest ($/m) Harvest cost ($/m) Initial Planting Cost ($) Discount Rate (%) 60 140,000 5 1.5 1,550 3 200,000 5 1.5 1,550 3 220,000 5 1.5 1,550 3 a) b) Calculate the present value of net benefits for each harvest age, and state which harvest age you would recommend. (26 points) What do you expect will happen to the optimal harvest age if the discount rate decreases? If it increases? Please explain using the two concepts of MB of delaying harvest and MC of delaying harvest. (8 points) Now suppose that this stand of trees is located on publicly owned land. The firm holds a contract with the federal government to harvest this stand of trees at 60 years. If the firm is contractually obligated to harvest at 60 years, what is the resulting difference in the present value of net benefits from your answer in part a)? (3 points) c) 2. A forestry firm is planning a single harvest on privately-owned land. The firm asks if you would help them determine the optimal harvest age of their stand of trees. You are given data for future harvests at three different time periods: 60, 70, or 80 years. (37 points) 70 80 Age of Stand Volume harvested (m?) Timber price at time of harvest ($/m) Harvest cost ($/m) Initial Planting Cost ($) Discount Rate (%) 60 140,000 5 1.5 1,550 3 200,000 5 1.5 1,550 3 220,000 5 1.5 1,550 3 a) b) Calculate the present value of net benefits for each harvest age, and state which harvest age you would recommend. (26 points) What do you expect will happen to the optimal harvest age if the discount rate decreases? If it increases? Please explain using the two concepts of MB of delaying harvest and MC of delaying harvest. (8 points) Now suppose that this stand of trees is located on publicly owned land. The firm holds a contract with the federal government to harvest this stand of trees at 60 years. If the firm is contractually obligated to harvest at 60 years, what is the resulting difference in the present value of net benefits from your answer in part a)? (3 points) c)

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