| 5% | 6% | |||||||||||
| Gross return | = | $7.00 | Gross return | = | $7.00 | |||||||
| 5 | × | .53 | = | 2.65 | 5 | × | .94 | = | 4.70 | |||
| $4.35 | / .101 = 43c | $2.30 | / .152 = 15c | |||||||||
Example 3: Assuming that stumpage will be worth $6.00 in 50 years, and that public enlightenment will keep the annual fire and tax charge from exceeding 20 cents, what price obtainable for cut-over land today, made to earn 5 per cent compound interest in some other business, is as profitable as keeping the land for a second crop? If other business would earn 6 per cent?
| 5% | 6% | |||||||||||
| Gross return | = | $6.00 | Gross return | = | $6.00 | |||||||
| 20 | × | .102 | = | 2.04 | 20 | × | .142 | = | 2.84 | |||
| $3.06 | / .56 = $7.07 | $3.16 | / .90 = $3.51 | |||||||||
FUTURE STUMPAGE PRICES NECESSARY TO MAKE DOUGLAS FIR SECOND CROP PAY EITHER 5 OR 6% COMPOUND INTEREST ON INVESTMENT.
| Cost per M Feet | ||||||
| Original Investment per acre. | Taxes and protection paid yearly per acre. | 50 year rotation (20.5 M per A.) | 60 year rotation (35 M. per A.) | 70 year rotation (46.6 M per A.) | 80 year rotation (56.5 M per A.) | |
| (cents) | ||||||
| 5% Compound Interest | $2.50 | 10 | $2.40 | $2.35 | $2.90 | $3.90 |
| 15 | 2.95 | 2.85 | 3.50 | 4.80 | ||
| 20 | 3.45 | 3.35 | 4.15 | 5.65 | ||
| 25 | 3.95 | 3.85 | 4.75 | 6.50 | ||
| 30 | 4.45 | 4.35 | 5.40 | 7.35 | ||
| 5.00 | 10 | 3.80 | 3.65 | 4.50 | 6.10 | |
| 15 | 4.35 | 4.20 | 5.15 | 6.95 | ||
| 20 | 4.85 | 4.70 | 5.75 | 7.80 | ||
| 25 | 5.35 | 5.20 | 6.40 | 8.70 | ||
| 30 | 5.85 | 5.70 | 7.05 | 9.55 | ||
| 7.50 | 10 | 5.20 | 5.00 | 6.15 | 8.30 | |
| 15 | 5.75 | 5.50 | 6.75 | 9.20 | ||
| 20 | 6.25 | 6.00 | 7.40 | 10.05 | ||
| 25 | 6.75 | 6.50 | 8.00 | 10.00 | ||
| 30 | 7.25 | 7.00 | 8.65 | 11.75 | ||
| 6% Compound Interest | 2.50 | 10 | 3.65 | 3.85 | 5.25 | 7.75 |
| 15 | 4.40 | 4.65 | 6.30 | 9.30 | ||
| 20 | 5.10 | 5.40 | 7.35 | 10.85 | ||
| 25 | 5.80 | 6.15 | 8.35 | 12.35 | ||
| 30 | 6.50 | 6.90 | 9.40 | 13.90 | ||
| 5.00 | 10 | 5.90 | 6.20 | 8.45 | 12.45 | |
| 15 | 6.65 | 7.80 | 9.45 | 14.00 | ||
| 20 | 7.35 | 7.75 | 10.50 | 15.50 | ||
| 25 | 8.05 | 8.50 | 11.55 | 17.05 | ||
| 30 | 8.75 | 9.25 | 12.60 | 18.60 | ||
| 7.50 | 10 | 8.15 | 8.55 | 11.60 | 17.10 | |
| 15 | 8.90 | 9.35 | 12.65 | 18.65 | ||
| 20 | 9.60 | 10.10 | 13.70 | 20.20 | ||
| 25 | 10.30 | 10.85 | 14.70 | 21.75 | ||
| 30 | 11.00 | 11.60 | 15.75 | 23.30 | ||
These tables bring out a number of very interesting primary facts:
1. The rate of interest demanded of the investment is one of the most important factors. This is because such long terms are involved. The charges compound with prodigious rapidity toward the last. In any other business paying 6 per cent, compound, the maximum investment per acre given in the preceding table, that of a land value of $7.50 and a 30-cent annual charge for 80 years, would earn $1,317. A 75-year forest then harvestable should have 56-1/2 M to the acre, but this would have to bring over $25 per M to pay as well. On the other hand, the same deposits earning 4 per cent would only amount to $338 in the same period which would be equaled by timber at $6 per M.
2. For similar reasons, the length of time before cutting has much to do with profit or loss. The compounding of carrying charges eventually outstrips the production of material to a degree which can be offset only by the most rapid rise of stumpage values.
3. The greater the investment, the more marked the above effect and consequently the tendency to market an inferior product. A 60-year rotation is indicated by a majority of the conditions shown.
4. A comparatively slight increase in annual tax or fire charges may make the difference between profit and loss. Roughly, stumpage must bring $1 per M more to compensate for each 10 cents an acre for taxes at 5 per cent or for 7 cents at 6 per cent.