Bare Land Value
Bare Land Value (BLV), or Soil Expectation Value (SEV),
measures the net present
value of bare timberland if used in perpetual timber production, i.e. one
rotation after another following a constant rotation length and the same
silvercultural treatments. It is the
present value of the net returns from all continuing series
of rotations.
BLV Criterion:
the higher the BLV, the better the investment. The NPV
and BLV criteria yield the same ranking for investment projects with equal rotation
lengths. For example, if project A shares the same constant rotation length
for all continuing series of rotations with project B but differs from
project B in some silvercultural treatments, and the NPV criterion shows
that project A is better than project B, then the BLV criterion will also
show that project A is better than project B.
However, if the rotation lengths of the projects are different,
the NPV criterion is inadequate, we need to use the BLV criterion. For
example, the NPV criterion shows that project C, with 30 year rotation
length for all continuing series of rotations , is better than project D,
with 25 year rotation length. However, the NPV criterion does not take into
account the opportunity costs of the land for the 5 extra years for each
rotation in project C comparing with project D . The BLV criterion takes
into account all the land costs in the infinitive time horizon. The BLV
criterion may yield a different ranking comparing project D with project C.
The formula for bare land value is:
where BLV is the bare land value, NR is the net return at the end of the first
rotation, r is the discount rate and n is the rotation age. Because the
timberland is assumed to follow the same management regime rotation after
rotation, it should receive a perpetual series of cash flows every n years.
An example: assuming that there is a timberland investment strategy that
costs $200/acre for an initial investment and will receive $3500/acre at the end of the
first rotation, year 25. We assume such an investment pattern repeats itself forever.
Let's assume the discount is 5%.
To calculate the bare land value of this investment, first we need to
calculate the net return at the end of the first rotation. NR = $3500 -
$200*(1+0.05)25=$3500 - $677.27 = $2822.73. Note that the future
value of the $200 cost can be calculated using the compound
interest calculator.
Then, the Bare Land Value of the investment is $2822.73/((1+ 0.05)25-1)= $1182.86, using the above
calculator.
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