A forestry enterprise has just planted an area of land with 100000 saplings at a cost of £11 per tree, £1 of which was planting costs (the remainder being purchase cost).
The trees will be ready for cutting after 10 years at the earliest, and during the maturing period grow at an annual compound rate such that the value of usable wood increases each year by 20% of the initial purchase cost of each tree.
During the maturing period the annual cost of tending the plantation is expected to be equal to 1.5% of the value of the plantation at the start of that year, payable at the start of the second and all subsequent years. ( The first year's tending costs are included in the planting cost at the start of the first year.)
Calculate the IRR of this investment if the forestry enterprise decides that all of the trees are to be felled as soon as they mature, and if the cost of this felling is 5% of the value of trees felled.