Suppose you are considering purchasing bare land today that is surrounded by forest for the purpose of growing timber and harvesting in 50 years. Suppose we plant next year (year 1) and harvest in year 50. In addition to harvest, as the stand grows there are other benefits and costs the management plan generates, such as impacts to species habitat, water quality, carbon credits and taxes. Suppose these can be monetized. Values are given in the Excel spreadsheet posted on Bblearn.
For species, the initial absence of trees creates what is called edge habitat. Edge makes good forage for large animals such as deer, elk or owls. As the stand grows, the canopy becomes dense and the edge disappears. But as the trees grow taller, different habitat forms that supports other creatures.
Water quality is initially diminished due to run off and lack of shade to hold water on site longer. However, water quality improves with stand age.
Carbon credits are funds received by the owner for maintaining the land as forest, and taxes are paid annually and as a percentage of total profit at harvest.
With a required rate of return of 7%, what is the most you would pay for this parcel of land today?