Transcript Soil Expectation Value (SEV)

Soil Expectation Value (SEV)
• Financial criteria used to make even-aged
timber management decisions.
• Simply the year zero value of a perpetual
series of even-aged rotations
• Also known as Faustman formula
Net Present Value (NPV) for a
Single Rotation
• NPV may include the initial cost of land and land
value at time r
n
t
NP V  
where,
t 0
N
(1 i)
Nt = net cash flow in year t (Rt - Ct)
Rt = revenue in year t
Ct = expenditure year t
n = r = rotation length
i = discount rate
t
SEV timeline
PV1
1st rotation
PV0 of
perpetual
series
PV2
2nd rotation
PV3
3rd rotation
PV1 = PV2 = PV3 = ………PVn
PVn
nth rotation
Soil Expectation Value (SEV)
r
∑ (Rt-Ct) (1+i)
r-t
t=0
SEV =
(1+i)r - 1
where,
r = rotation length in years,
t = index on year” 0, 1, 2, . . . r
Rt = revenues in tth year
Ct = expenditures in tth year
i = discount rate