Essay on Optimum Age to Start the Transformation

In order to define the optimum age for the start of the transformation it is sufficient to forecast the cash flows for the next 80 years. Thus, it is important not to delay the start of the transformation and not to begin the transformation too early. The discounted values of the later fellings are less likely to make up for the low early revenues obtained from thinning only and this phenomenon is exaggerated with higher discount rates (Shrimpton, 1990). The net revenues from the different starting ages begin to coincide, as these trees approach peak, because the rate of increase in value of the residual trees begins to decrease.

In Appendix A, it is explicitly shown that the higher the discount rate, the less the optimum age to start the transformation is.
Thus, the optimum age to start the transformation is around age 45, at a discount rate of 3%, while at a discount rate of 7%, it is 35.

What do you know about Transformation?

However, the optimum starting age for higher Yield Classes is earlier for each discount rate. Consequently, delaying the starting age on the higher Yield Class site incurs a higher monetary loss, since a greater amount of timber yielded during any one felling period is obtained from thinnings and therefore put a downward pressure on revenues. By the same token, as the peak for clear felling for Yield Class 8 (one year after planting) site, for instance, approaches later thus thinning volumes do not fall substantially and converting age may be delayed to 40 at 7% discount rate or even beyond 45 at 3% discount rate.

Even though the Internal Rate of Return is not the best criterion to use to choose one of silvicultural systems, it shows the similar picture as NPV for each Yield Class (see appendix B).

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