1. Application 8.3 The Onceler considers replanting

The Onceler has clearcut a forest of Truffula trees, and is considering replanting. If he replants, in 40 years he will have another stand of trees to harvest, earning an (inflation adjusted) resource rent of $10 million. Replanting costs $1 million each year for three years. The Oncelers opportunity cost of capital is a mutual fund investment, paying 6%.

1. Fill in the chart below to determine if replanting is profitable.

Year	Cost	Benefit	Discounted Cost	Discounted Benefit
0	$1 m
1	$1 m
2	$1 m
40		$10 m
TOTAL

2. If the Onceler does replant, then the Brown Barbaloots, Swamee Swans and Humming Fish will come back, attracted by the habitat. Beginning in 40 years, their populations will recover sufficiently to generate a flow of benefits (people enjoy recreating among these creatures) equal to $1 m per year forever. What discount rate should the neoclassical Department of Sustainability use to evaluate replanting today? Fill in the chart below to evaluate whether replanting and clearcutting, replanting and not clear-cutting, or not replanting is potentially sustainable.

Year	Replant Cost	Replant Benefit Harvest	Replant Benefit Recreation	Discounted Cost	Discounted Benefit Harvest	Discounted Benefit Recreation
0	$1 m
1	$1 m
2	$1 m
40		$10 m	$1 m
41			$1 m
42			$1 m
43			$1 m
44			$1 m
45			$1 m
46			$1 m
47			$1 m
48			$1 m
TOTAL

3. Suppose in the example above that the benefits of clear-cutting and not replanting outweighed the costs. What would be have to be true for that decision to be economically sustainable?