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A Structural Analysis of Land, Income, and Cost Values in Timber Production

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This is an investigation of the structural relationships between income and cost values and of land values calculated according to the land expectation value method or Faustmann formula. An error in the treatment of regeneration costs, which has persisted in the formal statement of the formula since its inception over a hundred years ago, is pointed out that is important in principle and in practice. Explicit demonstration is given that the sum of either cost or income values for each year of a rotation is equal to the amount obtained by capitalization of net annual income from the rotation, provided the same rate of interest and production schedule are applied throughout. The cost of delay in regeneration is analyzed and stressed. Finally, the utility of net present value calculations of this type as expression of a framework for general forest production analysis is emphasized.
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Document Type: Journal Article

Affiliations: Professor of Forest Management, and Chairman, Department of Forestry, School of Natural Resources, The University of Michigan, Ann Arbor

Publication date: 01 June 1965

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