Accept or Reject the Offer to Sell 500 Ares of Timberland
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You own 500 acres of timberland, with young timber worth $40,000 if logged now. This represents 1,000 cords of wood worth $40 per cord net of costs of cutting and hauling. A paper company has offered to purchase your tract for $140,000. Should you accept the offer? You have the following information:
Years Yearly Growth Rate of Cords per Acre
1-4 16%
5-8 11
9-13 4
14 and subsequent year 1
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Solution Summary
This solution contains step-by-step calculations to determine the yearly growth rate, number of cords per acre, net value per cord and total value. It then provides recommendations if the company should sell 500 acres of timberland based on three main considerations.
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Please see the attached Excel spreadsheet.
Years Growth Rate # of Cords Per Acre Net Value Per Cord Total Value
0 1,000 $40 40,000
1 16% 1,160 $40 46,400
2 16% 1,346 $40 53,824
3 16% 1,561 $40 62,436
4 16% 1,811 $40 72,426
5 11% 2,010 $40 80,392
6 11% 2,231 $40 89,236
7 11% 2,476 $40 99,051
8 11% 2,749 $40 109,947
9 4% 2,859 $40 114,345
10 4% 2,973 $40 118,919
11 4% 3,092 $40 123,676
12 4% 3,216 $40 128,623 ...
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