Understanding Soil Expectation Value (SEV) in Timber Management Decisions
Soil Expectation Value (SEV) provides a financial criterion for making informed decisions in even-aged timber management. It assesses the year zero value of a perpetual series of even-aged rotations using the Faustman formula, representing the Net Present Value (NPV) for single rotations. The NPV can incorporate initial land costs and land values at the time of harvesting. Key components include revenues, expenditures, rotation length, and the discount rate, forming a crucial framework for sustainable forestry practices and investment assessments.
Understanding Soil Expectation Value (SEV) in Timber Management Decisions
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Presentation Transcript
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 where, 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
SEV timeline PV1 1st rotation PV2 2nd rotation PV3 3rd rotation PVn nth rotation PV0 of perpetual series PV1 = PV2 = PV3=………PVn
Soil Expectation Value (SEV) r ∑ (Rt-Ct) (1+i)r-t t = 0 SEV = (1+i)r - 1 where, r = rotation length in years, i = discount rate t = index on year” 0, 1, 2, . . . r Rt = revenues in tth year Ct = expenditures in tth year
