Net present value

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[[::Net present value|English]]  • [[::Net present value/sv|svenska]]

Net present value

In PlanWise and StandWise, Heureka calcuates the net present value (NPV) for each treatment unit and management schedule generated. It is the sum of discounted revenues minus costs, for an approximately infinite time horizon, and with the real discount rate set by the user. For even-aged management, Heureka approximates an infinite time horizon by assuming that the third forest rotation management regime will be repeated in perpetuity. For uneven-aged management, the last cutting is assumed to be repeated in perpetuity with a cutting time interval equal to the time elapsed between the last two cuttings projected.

Note that RegWise does not calculate net present value in a satisfactory manner, since it only include values until the last period and ignores the value of the ending inventory. RegWise is thus not suitable for economic analysis and valuation purposes. However, users can choose to prolong the time period for which net present value is calculated using the 'additional periods' setting in the simulation window.

For each even-aged program generated in PlanWise (and the NPV-tool in StandWise), Heureka generates up to three unique rotations. The reason for not just repeating the second management regime is to allow for the possible change of growth conditions over time. The climate model, if activated in a simulation, affects site fertility so that a certain rotation will have a different growth potential than the previous one, and consequently the management regime should be adapted to that. The growth of plantations will also be affected by the planting year, since breeding effects is assumed to increase over time. For example, trees planted in twenty years will give higher yields that trees planted today.

Even-aged management

The net present value for even-aged management is calculated as

where
S = Final felling year for the rotation preceeding the last rotation simulated, and
Net revenue in year t, with t = 0 marking year 0 of the planning horizon, and
r = Real discount rate, and
discount factor for year t, and
SEV = Soil expectation value as given below