You are looking to buy a tract of land for plantation management. You find two a
ID: 2729474 • Letter: Y
Question
You are looking to buy a tract of land for plantation management. You find two available pieces of land in the region. All thinnings will produce pulpwood. Use the following information to answer the questions.
Tract #1
Current age of Rotation: 27 years
Planting Costs: $125/acre
Tax and Management Fees: $8/ac/yr
Thinning Volume (age 18): 51.38 tons/acre
Thinning Volume (age 25): 96.3 tons/acre
Thinning Cost (age 18 & 25): $300/acre
Final Harvest Volume (age 35): 29.8 MBF/acre
Final Harvest Cost: $600/acre
Time of Harvest Pulp Price: $16/ton
Time of Harvest Sawtimber price: $448/MBF
Discount Rate: 8%
Total Acreage: 850 acres
Listing Price: $6,325,000
Tract #2
Current age of Rotation: 29 years
Planting Costs: $85/acre
Tax and Management Fees: $7/ac/yr
Thinning Volume (age 18): 22.67 tons/ac
Thinning Volume (age 25): 80 tons/ac
Thinning Cost (age 18 & 25): $400/ac
Final Harvest Volume (age 35): 32.5 MBF/ac
Final Harvest Cost: $350/acre
Time of Harvest Pulp Price: $12/ton
Time of Harvest Sawtimber Price: $478/MBF
Discount Rate: 8%
Total Acreage: 700 acres
Listing Price: $6,700,000
A) Which tract has a higher land value? Why?
B) Which piece of land is the better deal? Why? (Hint: Consider the standing timber in addition to the land to evaulate the seller's estimation of value)
C) Which piece of land would you buy and why?
Explanation / Answer
Tract 1
Tract 2
Current age of Rotation:
27 years
29 years
Planting Costs:
$125/acre
$85/acre
Tax and Management Fees:
$8/ac/yr
$7/ac/yr
Thinning Volume (age 18):
51.38 tons/acre
22.67 tons/ac
Thinning Volume (age 25):
96.3 tons/acre
80 tons/ac
Thinning Cost (age 18 & 25):
$300/acre
$400/ac
Final Harvest Volume (age 35):
29.8 MBF/acre
32.5 MBF/ac
Final Harvest Cost:
$600/acre
$350/acre
Time of Harvest Pulp Price:
$16/ton
$12/ton
Time of Harvest Sawtimber price:
$448/MBF
$478/MBF
Discount Rate:
8%
8%
Total Acreage:
850 acres
700 acres
Listing Price:
$6,325,000
$6,700,000
You are looking to buy a tract of land for plantation management. You find two available pieces of land in the region. All thinnings will produce pulpwood. Use the following information to answer the questions.
A) Which tract has a higher land value? Why?
Tract 2 looks to have a better land value due to the following reasons:
B) Which piece of land is the better deal? Why? (Hint: Consider the standing timber in addition to the land to evaluate the seller's estimation of value)
Tract 2 is a better option due to the following reasons:
C) Which piece of land would you buy and why?
Tract 2 is a better option due to the following reasons:
Tract 1
Tract 2
Current age of Rotation:
27 years
29 years
Planting Costs:
$125/acre
$85/acre
Tax and Management Fees:
$8/ac/yr
$7/ac/yr
Thinning Volume (age 18):
51.38 tons/acre
22.67 tons/ac
Thinning Volume (age 25):
96.3 tons/acre
80 tons/ac
Thinning Cost (age 18 & 25):
$300/acre
$400/ac
Final Harvest Volume (age 35):
29.8 MBF/acre
32.5 MBF/ac
Final Harvest Cost:
$600/acre
$350/acre
Time of Harvest Pulp Price:
$16/ton
$12/ton
Time of Harvest Sawtimber price:
$448/MBF
$478/MBF
Discount Rate:
8%
8%
Total Acreage:
850 acres
700 acres
Listing Price:
$6,325,000
$6,700,000
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