VA
Forestry Land Use Values Calculation
The Department of Forestry revised calculations of 2000 forestry land use values rates as follows:
1. The annual management fee and stumpage prices for pulpwood and sawtimber are projected at 2.3% inflation (use 3 year average), plus an additional 2% real price appreciation (use 5 year average) is applied to sawtimber prices to reflect historical trends.
2. Future cash flows are discounted back to the present at 7% on an after-tax basis. The assumption is that this discount rate, or cost of capital, is representative of alternative long-term after-tax rates of return from other sources such as tax-free bonds.
3. Sawtimber stumpage values are a weighted average of pine and hardwood based on the percentage of pine acreage and hardwood acreage in the county as determined by the 1992 Virginia Timber Survey. Previously, in pine counties only pine sawtimber prices were used and in hardwood counties only hardwood sawtimber prices were used.
FV STS = Future value of sawtimber stumpage
PV STS = Present value of sawtimber stumpage
FVIF = Future value interest factor
FV PWS = Future value of pulpwood stumpage
PV PWS = Present value of pulpwood stumpage
PVIF = Present value interest factor
FVIFA = Future value interest factor of an annuity
NPV = Net present value
AEV = Annual equivalent value
4. The following counties/city were converted from pine to hardwood in terms of the yield models used in determining land use value: Culpeper, Nelson, Amherst, Fluvanna, Franklin, Henry, Bedford and Lynchburg.
5. FV STS = PV STS (FVIF @ 4.3%, years at rotation) x MBF
FV PWS = PV PWS (FVIF @ 2.3%, years at thinning) x cords
FV annual costs = PV annual cost (FVIFA @ 2.3%, years at rotation)
6. NPV = FV STS (PVIF @7%, years at rotation)
+ FV PWS (PVIF @ 7%, years at thinning)
- FV annual costs (PVIF @7%, years at rotation)
- Establishment costs
7. AEV = NPV (FVIFA @7%, years at rotation)
8. The last step is determining land use value, calculated as follows:
AEV divided by Capitalization Rate
This is the same as determining the present value of a perpetual annuity where the value of the annual payment is divided by the discount rate.
state.vipnet.org |
