Reference no: EM131383934

You own 100 acres of timberland, with young timber worth $20,000 if logged today. This represents 500 cords of wood at $40 per cord. (cord is a unit of quantity for cut fuel wood.) After logging, the land can be sold today for $10,000 ($100 per acre). The opportunity cost of capital is 10%. You have made the following estimates:

1. The price of a cord of wood will increase by 5% per year.
2. The price of land will increase by 3% per year.
3. The yearly growth rate of the cords of wood on your land are: years 1 and 2: 15%years 3 and 4: 10%years 5 through 8: 5%years thereafter: 2%
4. The optimal decision is to log and sell the land after:
5. 8 years
6. 5 years
7. 4 years
8. 3 years
9. The present value of the optimal decision is approximately:
10. $30,000
11. $32,800
12. $34,250
13. $33,830