FINALS Flashcards
The three ways to identify the best option for production
total product function
the least cost option,
benefit-cost analysis
the flow of cash payments to or by an organization. Cost maybe regarded as a
negative cash flow returns or a positive cash flow.
Cash flow
the process of calculating the future value of money at a given interest rate.
Compounding
Vn = Vo (1+ I)n
Compounding
the interest of the first period is added automatically to the principal and the interest of the following period is also added on the new principal, and so on, thus the interest each year amounts to more than that of the preceding year
Compound interest
This interest is usually applied in forestry because we have to consider the growth increment of trees.
Compound interest
a technique or an economic tool that attempts to evaluate a project in terms of all relevant costs and benefits associated with such a project, including social costs and benefits.
Cost-benefit analysis
If the project benefits are greater than the project cost, then the project is economically ___________.
feasible/profitable.
the allocation of the value of fixed asset investments to the period of their usefulness.
Depreciation
the process of converting the future value of money to present value with the given interest rate
Discounting
…………Vn
Vo = ——–
(1 +I)n
Discounting
Formula of discounting
………..Vn
Vo = ——–
(1 +I)n
the rate at which production costs are deflated to a value at the present time.
Discount rate
any part of the firm’s business concerned with a particular product or group of similar products
Enterprise
an applied science of accounting in which the financial problems of businesses are analyzed to determine the policies that should govern investments and expenditures in order to secure the return of invested capital with adequate profit.
Finance
the value represented by the land, timber, production, and physical improvements altogether making a forest property.
Forest capital
an applied field that is concerned with the application of the tools of economics to problems of production, supply and demand, marketing and pricing of forest goods and services such as lumber, stumpage, plywood, fuel wood, recreation, wildlife, and similar products, and to the problems of industries that produce them.
Forest economics
deals with the operational activity of a business in forest production
Forest financ
the average annual net revenue obtained from a stand of trees; or the net revenue divided by age.
Forest rent
appraises the present value of forest property, including standing mature timber, young growing crops, and soil, either in the form of a single stand or a large tract with a diversity of ages, kinds of timber, and conditions of forest cover.
Forest valuation
a process of raising prices, giving rise to a reduction in the purchasing power of money.
Inflation
the purchase of an asset, or the undertaking of any commitment which involves an initial sacrifice followed by subsequent benefits.
Investment
the average rate earned on all costs made prior to the time of timber harvest. It is the rate at which compounded revenue equals the compounded costs of timber production.
Internal rate of return
the added output that comes with one extra input.
Marginal output
the present value of returns minus the present value of cost. Both returns and costs should be discounted by the value and interest factor.
Net present value
s the real cost of goods and/or services measured in terms of sacrificing the best alternative.
Opportunity cost
the margin-left after returning all operating costs and loses on depreciation on invested capital
Profit
the value after deducting the cost of production plus a margin for profit and risks from the estimated selling price.
Residual cost
s the income derived by multiplying the unit price by the quantity of goods sold.
Revenue
This is expressed by: R = P x Q
Revenue
refers to event whose probable occurrence can be quantitatively assessed.
Risk
refers to standing timber (or other forest crops) that have some economic and market values.
Stumpage
the negotiated price at which the owner of stumpage sells his timber or other forest crops.
Stumpage price
the residual value after deducting the cost of converting timber into its intended products plus the margin for profits and risks from the established selling price of the said end product.
Stumpage value
. Also known as the stumpage price computed using the formula: SV = MV - (TC + PR). TC is the total cost of processing the said product, PR is the allowance for profit and risk.
Stumpage value
the measure of satisfaction obtained from consuming a good.
Utility
the application of the basic economic principles to problems of production, distribution and utilization of forest resources which highlight the basic function of economics to forestry
Forestry Economics
four divisions of economics
production, exchange, distribution, and consumption.
the creation of goods and services.
Production
the transfer of ownership of goods and services using the price system.
Exchange
the movement of goods and services through the channels of trade.
Distribution
the final utilization of goods and services.
Consumption
one of the most important products of our economy
Timber production
five factors that generally affect timber production
peculiarities of timber production
ownership of commercial forest land
credit availability
taxes
borrowing interest rate.
What is the shortest timber production rotation
6-7 years
the product itself is immobile and it also requires that it be sold on-site
Stumpage selling
It means higher interest rates imposed
Risk
an annual tax levied on real and personal properties
Property tax
It behaves like a fixed cost, it has no effect on the optimum output but affects the overall cost of production.
Property Tax
a tax levied on areas utilized in production such as timber at the time of harvest.
Yield Tax.
a tax made in accordance to the time of harvest and which eliminates the time bias present in property tax due to long period of production
“Ad Valorem Tax” or Forest Charges
It is recognized as the opportunity cost in the use of money. It highlights the importance of the time value of money.
Interest
where initial sum (V0) is considered constant or only the principal sum is considered in computing the interest.
Simple interest
where (V0) vary because the interest grows exponentially, or where the principal sum and the interest gain is included in computing interest
Compound interest
What is the difference between the values of SI (simple interest) and CI (compound
interest)
the interest gain from compounding the interest that is added to the
principal.
“producer’s good”
Lumber
factors affecting demand for lumber are
price of lumber,
income of consumers
tastes and preferences
home financing/credit availability and its interest rate
construction methods
building codes
factors affecting supply for lumber are
price of lumber
labor productivity
cost of stumpage
It started from the Chinese discovery of the art of paper-making
Pulp and Paper Industry
Species used in making paper
Mollucan sau, Bagras, Kaatoan Bangkal, Eucalyptus and Benguet pine
From the forestry’s standpoint the most significant aspect of paper industry is
the manufacture of pulp
Why is the paper industry an oligopolistic market?
Due to its high capital cost
Reasons why the Ph is abnormally high in consuming paper
very high consumption by commercialized sectors,
high consumption in rural sector which depressed per capita income
high level of literacy and newspaper circulation relative to per capita income
a substitute and complementary good for lumber especially as sub-flooring, sheathing and ceiling
Plywood
Why is the plywood industry an oligopolistic market?
due to its requirement for specialized equipment
the newest wood-based sheet material ranging from the pure wood to those mixed with substitute materials and wastes like bagasse, and cement.
Particle Board
a substitute good for plywood and lumber.
Particle Board
deals with the business aspect of forestry that looks into income, asset, and product accounting, and helps ensure the financial viability of the production system.
Forest Finance
It helps us evaluates our cost and income data, in order for us to set targets that are realistic and time bound.
Forest Finance
one of the approaches in valuating resources in the past. It is often applied to uneven-aged type of forest or naturally growing forest, old growth and second growth.
Stumpage valuation
to determine as accurately as possible the monetary value of standing timber available for cutting on a particular area to be converted into commercial products such as lumber or pulpwood.
stumpage valuation
Formula for SV
SV=P-(C+M)
It is applied where: (a) heavy expenditures are not required, (b) simple products such as saw-log and pulpwood are produced, and (c) logs are not for exports
Overturn method
refers to a continuing increase in asset investments or profits yearly
Accumulation
It accumulates the annual payments for a fix period by discounting them to the present.
Present Value of Terminating Annual Series
Used to determine the money to be set aside annually to pay for a projected future amount
sinking problem
one of the most used interest-based formula specially for loan and mortgages
Amortization
It determines the annual payment that has to be made for a present loan that has to be paid in specific period and interest rate
Amortization
This form of discounting formula assumes an infinite series of fix sum that can be used to determine the present value of a good or service if we are given an interest rate.
Capitalized Value
the capitalized value of the land this is contrasted to NPV which only account for the value of the stand since SEV account for the value of the land and the stand.
Soil Expectation Value
the average annual net revenue obtained from a stand of trees; or the net revenue divided by age.
Forest rent
refers to the ratio of the present value of total benefits to the present value of total costs.
Benefit Cost Ratio
the number of years required to recover the initial capital investment or the cost of the project or an economic venture.
Payback period
the allowable borrowing rate should not be greater than the computed IRR, otherwise
the income will be negative
the higher the ratio, the
greater the return
, the shorter the payback period
the better
The higher is the value of NPV, SEV, ROI and Fr,
the higher the income
