Net present value of multiannual growth in the absence of periodic boundary conditions

Abstract

Purpose

Management implications of net present value computation are investigated in comparison to computation of capital return rate, in the absence of periodic boundary conditions.

Design/methodology/approach

The initial state of experimental forest stands is measured in the field. Further development of the stands is investigated using a growth model.

Findings

The capital return rate strongly depends on cutting limit diameter, whereas net present value (NPV) is insensitive to it. The net present value also is indecisive whether or not frequent further thinnings should be implemented. In the absence of further harvesting, the net present value of growth declines rapidly, as does the capital return rate. With repeated diameter-limit cuttings, the net present value declines even if the capital return rate is retained. After a few decades, the NPV stabilizes even if the capital return rate declines. On stands previously thinned from below, greater NPV is gained without further thinnings, whereas capital return rate requires repeated diameter-limit cuttings.

Research limitations/implications

It appears difficult to formulate management instructions on the basis of NPV computations because of the indecisiveness of the results.

Practical implications

Regardless of the degree of decisiveness, NPV-based management results in losses of capital return.

Originality/value

Net present value of further growth is computed in the absence of periodic boundary conditions, and the outcome is compared with the statistically expected value of capital return rate.

Citation

Kärenlampi, P.P. (2021), "Net present value of multiannual growth in the absence of periodic boundary conditions", Agricultural Finance Review, Vol. 81 No. 1, pp. 39-50. https://doi.org/10.1108/AFR-02-2020-0028