A hardwood forest currently has an inventory of 17 MBF of growing stock. The forester has determined that the ideal, sustainable reserve growing stock level is 12 MBF and suggested two management options:

Option 1: Immediately harvest 5 MBF and reduce the stand to the reserve growing stock of 12 MBF and subsequently harvest 10 MBF every 20 years forever.

Option 2: Wait 10 years when the stand will have an inventory of 26 MBF, harvest 14 MBF reducing the inventory to 12 MBF and subsequently harvest

10 MBF every 20 years forever.

Timber sells for $250/MBF and the owner's discount rate is 10%.

a. Compute the NPV of the first option.

b. Compute the NPV of the second option.

c. What is the opportunity cost of adopting Option 2?

d. What is the minimum annual payment the landowner must receive to choose Option 2?