A forest products company owns a 1,000-acre tract of forest land which has a total of 200,000 tons of biomass. The biomass grows by 10,000 tons a year. The going price for the wood is $500 per ton and is expected to remain stable for the indefinite future (in real terms). Two management practices are possible: clear-cutting, in which all trees are removed; and sustainable timbering, in which the amount of biomass removed annually is just equal to annual growth. The cost of clear-cutting is $40 per ton while that for sustainable timbering is $70 per ton. What should the company do if: Real interest rates are 3 percent per year Real interest rates are 5 percent per year The company is taken over by a conglomerate with $50 million in debt at a 10 percent real interest rate. a. b. C.

A forest products company owns a 1,000-acre tract of forest land which has a total of 200,000 tons of biomass. The biomass grows by 10,000 tons a year. The going price for the wood is $500 per ton and is expected to remain stable for the indefinite future (in real terms). Two management practices are possible: clear-cutting, in which all trees are removed; and sustainable timbering, in which the amount of biomass removed annually is just equal to annual growth. The cost of clear-cutting is $40 per ton while that for sustainable timbering is $70 per ton. What should the company do if: Real interest rates are 3 percent per year Real interest rates are 5 percent per year The company is taken over by a conglomerate with $50 million in debt at a 10 percent real interest rate. a. b. C.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 15P

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