A commercial logging company owns a 1,000 acre tract of forest land. Currently, an acre of that tract contains 200 tons of standing timber. The annual growth of timber per acre is constant and equal to 10 tons. The price of harvested timber is $30/ton, expected to be constant forever. Two management practices are possible: 1 Clear cutting, in which all trees are removed. The cost of clear cutting are $5/ton ustainable timbering, in which the amount of timber removed annually (forever) is equal to the annual growth. The cost of sustainable timbering is $10/ton. HINT: just like with the farmland values, use capitalized annual profits from sustainable harvesting 31. which practice will be profit maximizing when the real annual interest rate is 3%? a. Clear cutting b. Sustainable harvesting 12 which practice will be profit maximizing when the real annual interest rate is 5%? a. Clear cutting b. Sustainable harvesting Hardwoods Clearcut Sustainable Harvest Revenue $6,000,000 $300,000 per year Cost Profit Present Value 3% Present Value 5% $1,000,000 $5,000,000 $5,000,000 $5,000,000 $100,000 per year $200,000 per year $6,666,667 $4,000,000