Bus 650 Week 2

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Running Head: Chapter 9 Closing Case-Bunyan

Your Name

BUS650: Managerial Finance

Dr. Stanley Atkinson

January , 2013

The question asked of us this week sounds so simple “When should the company harvest the forest?” however as you begin to answer the question you discover just how complex it really is. In order to forecast correctly Mr. Boles must compute many different factors.

REVENUES

Mr. Boles should begin with the future value of revenue. The formula is the MBF per acre multiplied by total acres to be harvested multiplied by timber grade multiplied by future value factor. This is much easier in a table; I have included the table for 20 year revenues:

20 YEAR REVENUES|

| TOTAL MBF| 54000|

1P| 8100| 4657500|

2P| 22680| 12587400|

3P| 23220| 12306600|

FUTURE REVENUES| | $61,115,962.80 |

COMPARISON OF REVENUES|

20 years| $61,115,962.80 |

25 years| $29,352,810.58 |

30 years| $47,207,495.37 |

35 years| $67,443,367.44 |

Now this calculation must be made for every year that needs to be analyzed, such as 25, 30, and 35, such as this:

As we can see, revenues will increase the longer we can put logging the timber however Mr. Boles needs to continue to analyze the data. Next he should look at variable costs.

VARIABLE COSTS

COMPARISON OF VARIABLE COSTS|

20 years| $12,746,700 |

25 years| $16,641,525 |

30 years| $20,005,238 |

35 years| $21,598,575 |

Next, Mr. Boles would need to look at variable costs and forecast and evaluate them. See the attached comparison table:

Variable costs also increase every year that we hold off logging our timber however not at the same rate as revenues. If we look at the contribution rate for the years identified we can see that the contribution margin goes up the longer we don’t harvest the timber.

NPV

Attached is...
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