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 tCt = expenditure year tn = r = rotation lengthi = discount rate

n

t 0t

t

i)(1

NNPV

SEV timeline

PV1

1st rotationPV2

2nd rotationPV3

3rd rotationPVn

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

Example