A Company Owns a Tract of Timber That Will Keep

question 91

Multiple Choice

A company owns a tract of timber that will keep growing for a number of years.It calculates that the timber's value less the cost of harvesting is currently $50,000 and that this figure will grow by 10% in the next year and by 5% in the following year.If the cost of capital is 8%,when should the company harvest the timber?

• A) today.
• B) year 1.
• C) year 2.
• D) harvest a third of the timber each year.

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Definitions:

Price

The amount of money required to purchase a good or service.

Marginal Costs

The change in total costs that arises when the quantity produced is incremented by one unit; it is the cost of producing one more unit of a good.

Potential Customers

Individuals or businesses that have not yet purchased but have shown interest in a company's products or services.

Expected Profit

The anticipated financial gain from an investment or business activity, considering possible risks and rewards.