Solved: Using a 3 discount rate which is economically preferable, Business Management

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Using a 3 discount rate which is economically preferable

Consider a forest with 100,000 tons of standing timber and a growth rate of 5,000 tons of biomass per year. At a price of $100 per ton, what is the value of the forest if it is clear-cut versus the value of a sustainable management policy in which the annual harvest is no more than the annual growth?

a.) Using a 3% discount rate, which is economically preferable? (Hint: the formula for the PV of a future stream of benefits into perpetuity is PV = Annual Payment / Discount Rate)

b.) Which is economically preferable using a 6% discount rate?

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