NRM 4013 NATURAL RESOURCE ECONOMICS
FALL 2018
HOMEWORK ASSIGNMENT 02: DUE 18 SEPTEMBER 2018 AT 9:40 AM
PROBLEM ONE: 35 POINTS
A landowner is engaged in a wildlife habitat improvement plan that also includes some early
food plots to attract wildlife, followed by commercial timber harvests that alter stand
composition and structure to create openings, vertical diversity, and increase hard-mast
producing trees. The cash flows for the project are given below. The landowner can invest
money in other projects and gain 12% return on those alternative investments.
Project Year
Activity
Cash Flow
12%
0
Mark harvest for openings
($2,000)
$-2000
1
Establish food plots
($10,000)
-8929
1-20
Revenue from hunting lease
$1,400
$10455
1-20
Property taxes
($465)
-3475
3
Harvest timber in openings
$8,000
5694
5
Removal of invasive and
exotic plants
($8,000)
-4539
10
Timber stand improvement -
thinning to improve species
$12,000
3864
composition
20
Timber stand improvement -
thinning to improve species
$20,000
2073
composition
NPV = $3143
a. Determine NPV for the project using cost of capital of 12% $3,143
b. Determine the B/C ratio for the project using a discount rate of 12%
c. What is the IRR of the project the nearest whole percent?
PROBLEM TWO: 15 POINTS
Based on the cash flows for problem one and the cost of capital of 12%, determine the SEV and
EAA (EAE) for the project.
