1. We know that DV = (V0 – C) r + Sr describes the decision to cut wood now versus next year. If, V0 = 1000; V1 = 1250; C = 500; r = 0.10; and S = 500, a) Should we extract this year or wait until next year (please show your calculations)? b) What if V1 were 1000 and all the rest of the variables remained the same as the original case? c) What if r were 0.20? 0.30 and…? d) What if C were 250 and…? e) Interpret the impact of changes in the values of each of the variables (V0, V1, C, r, and S) on whether we will cut the trees today versus some later time period.

1.    We know that DV = (V0 – C) r + Sr describes the decision to cut wood now versus next year. If, V0 = 1000; V1 = 1250; C = 500; r = 0.10; and S = 500,

a) Should we extract this year or wait until next year (please show your calculations)?

b) What if V1 were 1000 and all the rest of the variables remained the same as the original case?

c) What if r were 0.20? 0.30 and…?

d) What if C were 250 and…?

e) Interpret the impact of changes in the values of each of the variables (V0, V1, C, r, and S) on whether we will cut the trees today versus some later time period.

 
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