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Forest Finance > Module 4.1 > Flashcards

Module 4.1 Flashcards

1
Q

It is the act of calculating the value an “investor” places on “property”.

A

Valuation

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2
Q

4 Measures of Value

A
  1. NPV
  2. WPL (SEV) of buyer
  3. Reservation price of seller
  4. Instinctive value
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3
Q

2 Uses of Valuation

A
  1. Offering price

2. Asking price

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4
Q

Process of estimating “market value”

A

Appraisal

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5
Q

Appraisal value is the ____ for similar property

A

Average expected selling price

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6
Q

What is the goal of appraisal?

A

To obtain the fair market value

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7
Q

Price at which a willing seller and a willing buyer will trade, neither being under compulsion to trade, and both having access to all knowledge relevant to the transaction

A

Fair market value

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8
Q

3 Uses of Appraisal

A
  1. Taxes
  2. Amount of loan collateral
  3. Estimate damages for insurance or law suites
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9
Q

What are the 2 uses of taxes?

A
  1. Assessment for property tax levy

2. Basis of property

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10
Q

3 possible buyers of standing timber

A
  1. Logger
  2. Saw or veneer mill timber buyer
  3. Broker of logs or standing timber
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11
Q

The one who buys for resale, accumulate specific products for buyers, and knows his/her customers.

A

Broker

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12
Q

What is stumpage in a buyer’s perspective?

A

Conversion return or Residual

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13
Q

What is lessened to the value of veneer or lumber in stumpage valuation

A
  1. Milling cost

2. Overhead for procurement or working capital

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14
Q

What is lessened to the value of delivered log price in stumpage valuation?

A
  1. Cost of logging and hauling

2. Overhead for procurement or working capital

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15
Q

What is stumpage value from a buyer’s perspective

A

Willingness to pay for stumpage, WPS

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16
Q

What are the 5 valuation factors?

A
  1. Price of lumber, veneer, or pulp
  2. Efficiency of processing plant
  3. Proximity of stand to mills or broker’s yards
  4. Price expectations of buyers
  5. Season of the year
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17
Q

What is stumpage value from a seller’s perspective?

A

Reservation price

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18
Q

Why aren’t conversion return and reservation price always the same?

A
  1. Unrealistic perception of timber values

2. Non-consumptive value given to timber in-situ

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19
Q

The investor’s maximum willingness to pay for an income-producing asset.

A

WPL

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20
Q

WPL is ____ the market value

A

not necessarily

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21
Q

What are the 4 types of WPL (bare land)?

A
  1. Even-aged management
  2. Uneven-aged management
  3. Holding value of immature even-aged value
  4. NPV of uneven-aged forest
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22
Q

What are the 3 large tracts of timber valued?

A
  1. Old Growth
  2. Young Timber
  3. Impacts of Loans
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23
Q

Consider timber only, not land. Volume too large to harvest in one year.

A

Old-Growth Timber Valuation

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24
Q

The timber value in old-growth timber valuation is ___ than the sum of future harvest values as determined by the ______.

A

less than, timber valuation factor

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25
Q

Formula of timber valuation factor

A

NPV of future timber harvests/Current stumpage value of entire volume

26
Q

Collection of various aged thrifty young growth stands to be cut at different times

A

Young timber valuation

27
Q

In young timber valuation, timber’s NPV will likely ____ stumpage value. However, this is not true if real interest rates are ___ and buyers are ____ about future stumpage prices.

A

exceed, high, pessimistic

28
Q

Use of existing equity to borrow funds to purchase additional business assets.

A

Leverage

29
Q

Loans are denominated in _____

A

Current dollars

30
Q

Loan payments are not adjusted for ____. Instead, the ____ is adjusted by the lender for expected ____ and ____.

A

Inflation, loan rate, inflation and risks

31
Q

For the impact of loans in NPV, the principal enters as a ____ while the payments enter as ____

A

revenue, costs

32
Q

Payments are discounted with ____ since payments are legal obligations

A

risk free interest rate

33
Q

Formula of NPV loan

A

Principal - PV of payments

34
Q

The ____ is reduced on an after basis because interest payments are usually _____.

A

Impact of loans, tax-deductible

35
Q

What are the 3 appraisal methods for market value?

A
  1. Comparable sales
  2. Capitalized income
  3. Replacement cost
36
Q

What is the goal of an appraisal? And what is not?

A

To estimate most-likely selling price not the average selling price

37
Q

Use depends on the availability of sales data

A

Appraisal by Comparable Sales

38
Q

In appraisal by comparable sales, ____ is a valuable business asset

A

Database

39
Q

13 factors to consider in making comparisons in appraisal by comparable sales

A
  1. Species mix
  2. Quality
  3. Average diameter
  4. Product mix
  5. Terrain
  6. Date of sale
  7. Distance from mills
  8. Road building and logging costs
  9. Log scale used
  10. Type of harvest
  11. Size of sale
  12. Terms of sale
  13. Liability for severance or other harvest tax
40
Q

3 considerations in terms of sale

A
  1. Cash as closing
  2. Pay-as-cut
  3. Installments
41
Q

2 Ways to Adjust Sales to Make them Comparable

A
  1. Regression Analysis

2. Adjustment factors

42
Q

Unit price made a function of sale characteristics. Requires sales data for a relatively short time period.

A

Regression Analysis

43
Q

In regression analysis, this is used as the independent variable

A

Trend line

44
Q

In regression analysis, the larger the number of factors (independent variables), the larger the _____ required

A

Database

45
Q

The non-statistical method of adjusting sales to make them comparable.

A

Adjustment factors

46
Q

2 basis of adjustments by experienced appraisers

A
  1. Knowledge of market

2. Published factors

47
Q

Simply an NPV calculation, but based on most likely conditions, not the conditions for a specific person.

A

Appraisal by Capitalized Income

48
Q

Other terms for appraisal by capitalized income

A
  1. Income appraisal

2. Income approach

49
Q

In appraisal by capitalized income, this is used when no comparable sales are available.

A

Necessity

50
Q

Appraisal by capitalized income is not useful if?

A

Non-income benefits are the major output of a property

51
Q

What are the 3 assumptions of appraisal by capitalized income?

A
  1. Use regional average yields
  2. Project prices with trend-lines for real prices
  3. Proper discount rate to use is difficult to estimate
52
Q

The discount rate used by the average buyer in computing the price paid for a property.

A

Derived capitalization rate

53
Q

One of the estimates used for sample properties by assuming cash flows and finding r that results in observed sales price

A

IRR

54
Q

Appraisal by Replacement Cost is useful if

A
  1. Trees were planted within the last “few” (less than 6) years
  2. Land with timber recently purchased
55
Q

This does not matter in appraisal by replacement cost

A

Sunk costs

56
Q

The assumption of appraisal by replacement value is that market price reflects the ____, but the _____ the valuation date is, the ____ it is that past costs affect market price.

A

initial costs, further out in time, less likely

57
Q

This is more like the seller’s asking price based on her costs

A

Forest NPV

58
Q

As a guideline for income approach, enter incomes as ____ and costs as ____ when ____

A

positives, negatives, discounting

58
Q

As a guideline for income approach, enter incomes as ____ and costs as ____ when ____

A

positives, negatives, discounting

59
Q

As a guideline for the replacement cost approach, enter costs as ____ and revenues as _____ when _____ historical costs.

A

positives, negatives, compounding

Forest Finance (6 decks)

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