LSY: Documentation for 

a Spreadsheet Tool to 

Evaluate Log-Sort Yard 

Economics

E.M. (Ted) Bilek

United States

Department of

Agriculture

Forest Service

Forest

Products

Laboratory

General

Technical

Report

FPL–GTR–184
June 2009

Bilek, E.M. (Ted). 2009. LSY: documentation for a spreadsheet tool to 

evaluate log-sort yard economics. General Technical Report FPL-GTR-184. 

Madison, WI: U.S. Department of Agriculture, Forest Service, Forest 

Products Laboratory. 38 p.

A limited number of free copies of this publication are available to the 

public from the Forest Products Laboratory, One Gifford Pinchot Drive, 

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Abstract

A spreadsheet-based model, LSY (Log-sort Yard Cash Flow 

Analysis), has been constructed to aid in the pre-feasibility 

and financial feasibility analysis of log-sort yards. It is 

meant to be referred to concurrently with this documentation 

and is available for downloading at no cost from the Forest 

Products Laboratory’s website at: http://www.fpl.fs.fed.us/

documnts/fplgtr/fpl_gtr184/.

The model is flexible, allowing up to 20 species and grades 

that each may be sorted into up to 19 products, giving a 

total of 380 different output possibilities. The mix of those 

species and grades can be allowed to change over time. 

Sort-yard operating hours and productivity and number and 

type of employees can be changed over time. Cash flows 

reflect automatic replacement of capital equipment when it 

is projected to wear out. Data on various pieces of capital 

equipment and equipment configurations can be stored so 

that cost comparisons can easily be made between different 

sorting systems.

Keywords: Log-sort yard, financial feasibility, smalldiameter, economics, break-even analysis, cost analysis, 

decision support

Acknowledgments

Thanks to John “Rusty” Dramm and the Technology Marketing Unit at the Forest Products Laboratory and to HanSup Han at Humboldt State University for their extensive 

reviews, comments, and suggestions on the project and on 

earlier drafts and versions of the model. However, any errors or omissions remain those of the author. Cover photos 

courtesy of John “Rusty” Dramm. 

Contents

Page

Introduction..........................................................................1

LSY Features........................................................................2

LSY Structure ......................................................................3

Calculated Weighted Average Cost of Capital.....................7

System Capacity and Resource Supply................................8

Summary Cash Flows for Equipment................................ 12

Equipment Cash-Flow Models .......................................... 12

LSY Limitations................................................................. 15

Running a Break-Even Log Costing in LSY ..................... 15

Conclusions........................................................................ 15

References.......................................................................... 16

Appendix 1—Log-Sort Yard User-Inputs by 

Worksheet........................................................................... 17

Appendix 2—Log-Sort Yard Selected Worksheet 

Printouts for a Sample Run................................................ 25

Disclaimers

Please contact the author if you wish to use LSY for any 

purpose other than financial planning and cash-flow anaylsis 

of log-sort yard. Also, please contact the author if you have 

any questions or comments regarding its use. Neither Ted 

Bilek nor the U.S. Forest Service will accept any liability 

for losses resulting from reliance on the model’s results. 
LSY: Documentation for a 

Spreadsheet Tool to Evaluate 

Log-Sort Yard Economics 

E.M. (Ted) Bilek, Economist

Forest Products Laboratory, Madison, Wisconsin

Introduction

This is the documentation for the spreadsheet model, Logsort Yard Cash Flow Analysis (LSY). The model was 

designed to aid in financial planning and cash-flow analysis 

of log-sort yards. 

Log-sort yards take in logs, possibly add some minimal 

processing, and then sort the logs into specialized grades 

more suitable for downstream processing. Sort yards work 

best when the incoming log mixes contain a wide variety of 

log sizes, grades, and possibly species. Also important is if 

markets are willing to pay a premium for logs that are more 

narrowly grouped. Where they succeed, log-sort yards are 

able to process and sort logs more cost-effectively than can 

be done at a forest landing or at a mill yard that is farther 

down the processing line.

Dramm and others (2004) examined the economics, 

planning, and feasibility of log-sort yards. In deciding to 

construct a sort yard, they recommended a step-by step 

progression through three main developmental stages 

involving (1) feasibility and business planning; (2) siting, layout, design, and construction; and (3) operations 

and business management. They provided a model, 

LOGYARDFEAS, that can assist in a pre-feasibility 

analysis. 

LOGYARDFEAS provides a quick way to estimate gross 

margins on various species and log grades. Gross margin 

is the difference between the total cost associated with log 

purchase and sort yard operations and total revenue resulting 

from sorted log sales. If gross margin is negative or barely 

positive, there is little point in pursuing the project. If a 

strong positive gross margin is estimated, the project may 

be worth investigating further.

LOGYARDFEAS is relatively easy to use but is limited. 

Log-sorting costs are not itemized, but are instead entered 

as lump-sum numbers. A user would not be able to account 

for different equipment configurations or layouts. The log 

input mix over time cannot be changed; nor can changes in 

productivity. It is not possible to perform a detailed financial 

analysis using the LOGYARDFEAS because the program 

does not address cash flows and the time value of money 

over a number of years. LSY addresses these deficiencies.

LSY is an integrated financial model designed to cost out 

a log-sort yard over a 10-year planning period. Ten years 

was chosen as a period long enough to recover most capital 

investment required for a sort yard. Beyond this period, 

many critical input variables such as log supply, costs, and 

product prices become much more speculative.

LSY provides summary tables of 10-year cash flows, before 

tax and finance, before tax, and after tax. It also provides 

physical product flows over the project period. The model 

calculates net present values (NPV) and internal rates of 

return (IRR) both before and after taxes. LSY can be used to 

calculate the maximum amount that could be paid for logs 

while still providing the required rate of return.

LSY is spreadsheet-based, created in Microsoft ExcelTM 

(Microsoft Corporation, Redmond, Washington), giving it a 

familiar interface, making it flexible, and providing it with 

all the built-in power of spreadsheet applications. The model 

is organized around worksheets that can be easily replaced 

or updated to effectively reflect the business environment 

for the sort yard operation. All data that must be manually 

entered are in blue. All inputs that are used by several 

worksheets are fully integrated so that they only need to be 

changed once to give new costings.

Net present values along with nominal and real internal 

rates of return are calculated before tax and finance, before 

tax, and after tax. A summary chart shows key cost areas. A 

cash-flow chart shows years in which there will be surpluses 

and deficits. Summary tables show which input species 

and grades as well as output products are most and least 

profitable. Key cost centers can be quickly identified. A full 

sensitivity analysis on revenues, nine cost centers, and a logcost break-even analysis can be run from the summary page.

LSY has several inputs on its Summary worksheet, allowing 

you to easily see the effects of changed contingency 

assumptions or cost or revenue assumptions on the financial 

summary. Also included on the Summary worksheet are 

inputs that allow you to do a full sensitivity analysis without 

leaving this page.

Log-sort yard costs may be divided into two groups: 

current and capital costs. Log-sort yard costs are divided 

into current and capital costs, rather than variable and fixed 

costs, because of the effect of inflation on these expenses 

over time. Variable costs are always current costs. All 

current costs are subject to annual inflation. Whereas some 

fixed costs are current costs, other fixed costs are capital 

costs. For example, administration and insurance costs are 
General Technical Report FPL–GTR–184

2

usually considered to be fixed costs, but they are charged 

and paid each year and would be expected to increase 

annually with inflation. In other words, administration and 

insurance costs, while fixed, are also current costs.

Other fixed costs (e.g., machinery, buildings) are capital 

costs. Most capital costs are depreciable (land is not). 

The annual expenses recognized for capital costs through 

depreciation do not increase annually with inflation. 

Depreciation expense is fixed when an asset is purchased 

and a depreciation method is chosen. The only time that 

depreciation expense is increased is when the capital asset 

is eventually replaced with a more expensive one.

In short, LSY assumes that all current costs increase with 

inflation. Depreciation expense for capital costs is fixed at 

the time the asset is purchased and depends on the asset cost 

and the depreciation method chosen.

Current costs are used within a year and therefore are 

allocated in the year in which they occur. With these, the 

effects of changing economic conditions or assumptions 

can be explored quickly and easily over the 10-year project 

planning period. Current costs include log input costs, 

wages, worker accessories, administration, and other costs. 

Current costs are relatively easy to calculate and allocate on 

the basis of standard rates and job estimates.

Capital costs involve investments whose use is spread over 

two or more years. Capital costs include land and buildings, 

chattels (e.g., office equipment), capital equipment, and 

working capital. Capital costs can be more difficult to 

allocate to a specific year. The difficulty is complicated 

further by the allowable depreciation expense.

Capital investments may wear out and need to be replaced 

at least once during the planning period. Alternatively, they 

may have an economic life longer than the 10-year planning 

period. In either case, they will probably have some terminal 

value at the end of the planning period.

To correctly calculate NPVs and IRRs and to correctly 

calculate break-even log costs and manufacturing costs, 

terminal values must be accounted for in the analysis. LSY 

does this automatically, basing the terminal values of capital 

assets either on the assets’ estimated current values or their 

book values. Current values use straight-line depreciation 

based on the assets’ economic lives, and increase resulting 

values for inflation. Book values use the assets’ historic 

costs and whatever depreciation rate you have chosen.

A basic knowledge of discounted cash-flow analysis is 

required to understand the outputs provided by LSY, what 

they mean, and why they change when certain variables 

are altered. For background, see any basic corporate 

finance textbook (for instance, Brealey and Myers 1991 

esp. Part 1: “Value.”). Some understanding of accounting 

and depreciation is also helpful, but not essential to 

use this model. To enter data on appropriate equipment 

configurations for a log-sort yard, an understanding of forest 

engineering and sawmill operation is necessary.

To find out about LSY’s features, structure, general 

assumptions, and limitations, continue reading. To see 

the inputs required to assemble a costing model, turn 

to Appendix 1. To see a printout of the title, contents, 

summary, and general assumptions worksheets in a sample 

run of the model, turn to Appendix 2.

LSY Features

Features in the log-sort yard model include the following:

	Up to 20 log input grades and 19 product output grades

	Up to eight different types of capital equipment

	Three depreciation methods or a user-specified custom 

rate

	Two methods for automatically calculating terminal 

values

	The option to purchase or lease land and buildings

	A library where common equipment types and equipment 

configurations may be stored

	Flexibility in shift scheduling and administration 

requirements

	Flexibility in log input and output mixes over time

Limitations

Although LSY should be of use to anyone considering 

constructing a log-sort yard, using the model requires 

an understanding of cash-flow analysis. A fictitious 

example is provided to illustrate how the model 

functions and its results. The data do not represent a 

real-world example. Users will have to enter their own 

data appropriate for their specific circumstances. To 

acquire such data, users need to have a certain level 

of knowledge in forest operations, forest products 

marketing, and log procurement practices.

LSY has been extensively tested. However, the model 

is still released “as is.” Users can view formulas and 

calculations. However, the model is not guaranteed to 

be free of errors under all calculation scenarios. The 

results of the model will only be as good as the input 

data. If the input data are poor, the results cannot be 

expected to be reliable. Even with good input data, 

all financial planning models involve forecasts. If 

conditions change to make the underlying assumptions 

invalid, this will invalidate the model’s results. 

However, I hope that using LSY will provide improved 

information for decision-making in the set-up and 

operation of log-sort yards.
3

	A comprehensive financial analysis showing 10‐year 

cash flows and net present values and internal rates of 

return before tax and finance, before and after tax

	Extensive warnings and error messages indicating where 

the model might be producing misleading answers and 

when invalid information is entered

LSY Structure

The LSY model consists of 18 worksheets. They may be 

divided into seven groups (Appendix 2):

	Three preliminary worksheets (Title, Introduction, 

Contents), which have light green tabs

	One Summary worksheet and two summary charts with 

yellow tabs

	One General Assumptions worksheet with a purple tab

	One Gross Margin worksheet with a green tab

	One Consolidated Operating Costs worksheet with a 

dark blue tab

	Eight subsidiary costs worksheets with light blue tabs

	One equipment library with a grey tab

The worksheets in each of these groupings are discussed 

below, followed by a brief discussion of the model’s basic 

assumptions and limitations.

Preliminary Worksheets—Light Green Tabs

The three preliminary worksheets are the Title, 

Introduction, and Contents. The introduction contains 

some brief background to the model. The contents page 

describes the subsequent worksheets. These preliminary 

worksheets provide some guidance in using the model if 

this documentation is not open. In addition, comments 

in selected cells within the model provide additional 

information.

Summary Worksheets—Light Yellow Tabs

The three summary worksheets consist of a numerical 

Summary and two accompanying charts that consolidate 

the analysis results.

The Summary is the bottom line, containing the final 

costings, financial indicators, and 10-year cash flows. It 

also contains the input variables to conduct a sensitivity 

analysis. Tables on this worksheet include financial 

indicators; the revenue and cost summary; the break-even 

summary; sensitivity analysis scaling factors; and a cashflow summary.

On the Summary worksheet, the Financial Indicators 

(Screenshot 1) include net present values (NPV) and 

internal rates of return (IRR). Net present value is the 

difference between a project’s positive cash flows and its 

negative cash flows discounted back to the present (i.e., 

adjusted for interest) at the weighted average cost of capital 

(WACC is an interest rate, also known as the discount rate). 

If a project’s NPV is positive, it is earning a rate of return 

higher than the discount rate used to calculate the NPV. If a 

project’s NPV is negative, it is earning a rate of return lower 

than the discount rate used to calculate the NPV.

Other literature may refer to the NPV calculation as net 

present worth (NPW) or present net worth (PNW). All refer 

to the difference between a project’s benefits and its costs 

when both are discounted at an appropriate rate.

Internal rate of return is an interest rate at which NPV = $0. 

The IRRs are shown both as nominal percentages, including 

inflation, and real percentages, not including inflation.

Because NPV is identical in either real or inflation-adjusted 

terms, only one set of NPV figures is shown. Both NPVs 

and IRRs are shown before tax and finance, before tax, and 

after tax.

Before-tax NPV is calculated using before-tax cash flows 

and by using a tax-adjusted after-tax WACC for the discount 

rate. The formula to calculate this before-tax WACC 

follows:

Before-tax WACC = After-tax WACC / (1 – Tax rate)

The Financial Indicators table also contains a number, IRR 

Test, shown in blue. All user-input variables in LSY are in 

blue. The IRR Test is a beginning point for the computer’s 

internal rate of return calculation. A normal default would 

be 10%. However, if the IRR is undefined or if the cash 

flows in the Summary table that follows are negative at 

some other time than at the start, it is advisable to do some 

tests with some extreme values, both positive and negative, 

to test for extremely high or low IRRs or for multiple IRRs.

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics

FINANCIAL INDICATORS

Net present

value Nominal IRR Real IRR

Before finance & tax $ 1,545,605 21.6% 18.1%

Before tax $ 1,728,811 28.3% 24.6%

After tax $ 808,482 14.3% 10.9%

IRR Test = 10%

Screenshot 1—LSY’s financial indicators on the Summary worksheet
4

The Revenue & Cost Summary (Screenshot 2) contains 

present values of the revenue and all the major cost 

categories. These present values are provided in terms of 

total dollars, and dollars per unit. All the costs are also 

given as a percentage of sales so that you may see which 

of the cost categories are the most significant. See the far 

right column of Screenshot 2. This is one type of sensitivity 

analysis.

The net profit (loss) calculated in Revenue & Cost Summary 

is a net present value. That is, it represents after-tax profit 

(loss) over and above the owners’ after-tax weighted 

average cost of capital. The net profit (or loss) in Revenue & 

Cost Summary above is identical to the after-tax net present 

value in the Financial Indicators in Screenshot 1. If the net 

profit (loss) = $0, then the internal rate of return will be 

equal to the after-tax real weighted average cost of capital.

The Break-even and Profit (Loss) Summaries (Screenshot 3) 

contain calculated break-even log costs on a volume and 

per-piece basis. These represent the maximum average 

amount at the project’s start-up that could be paid for input 

logs and pay for sorting costs, while still providing the 

specified after-tax return on capital. The break-even product 

value is a minimum price at which the yard’s logs must be 

sold in order to provide the specified after-tax rate of return. 

The estimated profit (or loss) shows the yards estimated pretax margin (or loss).

General Technical Report FPL–GTR–184

REVENUE & COST SUMMARY After-tax PV $/Piece (input) $/MBF (input) $/MBF (output) Pct. of sales

Gross revenue

Sales revenue $ 73,211,307 13.51 340.36 358.27 100.0%

Log costs (47,752,761) (8.81) (222.00) (233.68) -65.2%

Subtotal: gross margin $ 25,458,546 $ 4.70 $ 118.36 $ 124.58 34.8%

Operating costs

Capital costs $ (5,396,295) (1.00) (25.09) (26.41) -7.4%

Direct production costs (11,162,706) (2.06) (51.89) (54.63) -15.2%

Fixed costs and overheads (5,914,096) (1.09) (27.49) (28.94) -8.1%

Working capital (270,553) (0.05) (1.26) (1.32) -0.4%

Subtotal: operating costs $ (22,743,650) $ (4.20) $ (105.73) $ (111.30) -31.1%

Financing and taxes

Financing (81,138) (0.01) (0.38) (0.40) -0.1%

Capital gains and income taxes (1,825,276) (0.34) (8.49) (8.93) -2.5%

Subtotal: financing and taxes $ (1,906,414) $ (0.35) $ (8.86) $ (9.33) -2.6%

Net profit $ 808,482 $ 0.15 $ 3.76 $ 3.96 1.1%

Screenshot 2—LSY’s revenue and cost summary on the Summary worksheet

BREAK-EVEN AND PROFIT SUMMARIES Year 0 value Year 1 value

Optional summary log input cost ($/MBF input) $ 228.26 $ 235.10

Calculated avg. break-even log cost ($/MBF input) $ 228.22 $ 235.07

Actual weighted-avg. log input cost ($/MBF input) 222.00 228.66

Estimated pre-tax net profit ($/MBF input) $ 6.22 $ 6.41

Actual weighted-avg. product value ($/MBF output) $ 358.27 $ 369.02

Calculated avg. break-even product value ($/MBF output) 351.72 362.27

Estimated pre-tax net profit ($/MBF output) $ 6.55 $ 6.75

Calculated avg. break-even log cost ($/piece input) $ 9.06 $ 9.33

Actual weighted-avg. log cost ($/piece input) 8.81 9.08

Estimated pre-tax net profit ($/piece input) $ 0.25 $ 0.26

Screenshot 3—LSY’s breakeven and profit (loss) summaries on the Summary

worksheet
to see the effect of changes in costs or revenues on the net 

present values, internal rates of return, and cash flows. The 

sensitivity analysis scaling factors for sales revenues and log 

costs are incorporated into the analysis on the Gross Margin

worksheet. All other scaling factors are incorporated on their 

individual costing worksheets.

Calculating the Full Break-Even 

Manufacturing Cost

The full break-even manufacturing cost is the cost 

that would have to be charged in Year 1 just to process 

the logs (for example, if the logs were taken on 

consignment). The break-even manufacturing cost 

does not include any log input costs. Implicit in this 

calculation is the assumption that the manufacturing 

cost will increase annually with inflation.

To find the full break-even manufacturing costs 

($/MBF input), including fixed costs, overheads, and 

the required after tax return on invested capital, set the 

sensitivity analysis scaling factor for sales revenues to 

0% (cell J14 on the Summary worksheet). The effect of 

this is to zero out all log sales revenue. Now the breakeven log cost will equal the full manufacturing costs.

To calculate the break-even log cost, set all the log 

input costs on the Gross Margin worksheet (cells 

C104:C123 on the Gross Margin worksheet) all equal 

to the Optional log input cost in the Break-Even and 

Profits Summaries table (cell B37 on the Summary

worksheet), and force the net profit or loss in the 

Revenue & Cost Summary table (cell B32 on the 

Summary worksheet) to $0 by changing the Optional 

log input cost (cell B37 on the Summary worksheet) 

either iteratively or using Excel’s Goal Seek function.

The optional break-even log input cost will then 

represent the full break-even manufacturing costs, 

including the required return on capital. Note that 

this cost will be negative. All product sales revenue 

is eliminated (by setting the sales revenue sensitivity 

factor equal to zero); therefore, the only way to 

recover manufacturing costs is through negative log 

costs. These negative log costs would represent tipping 

fees that at the break-even point with no other sales 

revenue would exactly equal the manufacturing costs.

Related to the sensitivity analysis scaling factors are Cost 

Contingency Allowances. These allow you to provide 

an extra percentage over and above the given costs as an 

overrun allowance without having to adjust the sensitivity 

analysis scaling factors. The Cost Contingency Allowances 

are incorporated into the analysis on the Consolidated 

Operating Costs worksheet.

5

The Break-Even Cost Calculation 

and Working Capital

The break-even log cost calculation may only be 

an approximation because of a circular relationship 

(Fig. 1). Inventory value and accounts payable are in 

part a function of log cost. For example, if log costs 

increase, the value of logs held in inventory will 

also increase, as will the value of accounts payable. 

Inventory value and accounts payable are also 

components of working capital, one of the costs that 

must be recovered in order to break even.

Following the relationships in Figure 1, as log costs 

change, inventory value and accounts payable both 

change. As inventory value and accounts payable 

change, working capital requirements change. As 

working capital requirements change, the break-even 

log cost changes. As the break-even log cost changes, 

inventory value and accounts payable both change.

If inventory and accounts payable are major 

components of working capital, and if working 

capital is a major cost component, and if the net profit 

(loss) is far different from $0, then calculated breakeven log cost and the true break-even log cost will 

be significantly different. If working capital is only a 

minor component of total costs, the calculated breakeven log cost will be very close to the true break-even 

cost. It may differ by only a few cents. The only way 

to calculate the true break-even log cost is to either use 

Excel’s Goal Seek function or do successive iterative 

calculations until the net profit (or loss) in the Revenue 

& Cost Summary table is $0.

The Break-even and Profit Summaries also provide an 

optional input for log costs, shown in blue. If the log costs 

on the Gross Margin worksheet (cells C104:C123) are set 

equal to this optional log input cost, the true break-even 

log input cost may be found on the Summary worksheet by 

successive iteration or by using the built-in Excel function, 

“Goal Seek.” In either case, the objective is to find the log 

input cost so that the net profit (or loss), in cell B32 on the 

Summary worksheet, is $0. At this point, the IRR will be 

equal to the after-tax weighted average cost of capital.

IMPORTANT! These break-evens are in terms of Year 0 

values. If these values are being used to set contract prices 

for the upcoming years, then they should be adjusted for 

inflation. That is why the Year 1 values are shown in the 

Break-Even and Profit Summaries table on the Summary

worksheet (Screenshot 3).

The Summary worksheet contains input options for running 

a sensitivity analysis. The Sensitivity Analysis Scaling 

Factors (Screenshot 4) can be varied above and below 100% 

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics
6

The Cash Flow Summary is a combined 10-year projection 

of capital costs, revenues, and annual expenses. A Bottom 

Line Summary shows the cash flows before tax and finance, 

before tax, and after tax at the top of the worksheet. The 

main assumptions on this model are the following:

	All cash flows occur at the end of each year.

	Year 0 represents the start of the project’s operations.

	All cash expenses and revenues will increase at the 

specified inflation rate.

	Depreciation expense will not increase with inflation.

	As chattels and capital equipment wear out, they will be 

replaced with identical units that will have increased in 

cost according to the specified inflation rate.

	If the taxable cash flow is negative in any given year, 

the owners have sufficient income from other sources so 

they can take a tax deduction in that year and not have 

to carry the tax credit forward, which would reduce the 

owners’ total rate of return.

The Pre-tax Profitability and Break-even Log Cost Estimate 

table summarizes the break-even manufacturing costs and 

calculates the maximum amount that could be paid for logs 

and still break even, returning just the required after-tax rate 

on invested capital. After actual log costs are deducted, the 

remaining profit (or loss) is an estimate of the additional 

amount available (or required) on a pre-tax basis that would 

still provide the required rate of return.

Additional tables on the Summary worksheet include the 

Volume Processed Summary, the Annual Productivity 

Summary, and a Summary Cash Flow table.

Two charts provide a quick view of the project’s cost 

breakdowns, potential profitability, and cash flows. The 

Pie Chart shows a consolidated picture of the Revenue & 

Cost Summary table from the Summary worksheet (Fig. 2). 

All the figures are shown on an after-income tax basis. The 

groupings follow:

	Log costs

	Capital costs

	Other operating costs

	Financing and taxes

	Net profit (loss)

Note that profit is defined as any return over and above 

the owners’ required return on invested capital. Loss is a 

smaller-than-required return on invested capital.

The Cash Flow Chart shows the cash flows over the 

project’s life on three bases: before tax and finance, before 

tax, and after tax. A sample of the cash-flow chart is shown 

in Figure 3. 

General Assumptions Worksheet—

Purple Tab

General assumptions are common assumptions among 

several of the worksheets. Some of these assumptions 

must be entered. Some are calculated based on the entered 

assumptions. Both are shown on the General Assumptions

worksheet.

General Technical Report FPL–GTR–184

SENSITIVITYANALYSIS SCALINGFACTORS

Sales revenues 100.0%

Log costs 100.0%

Land & bldg. 100.0%

Chattels 100.0%

Capital equipment 100.0%

Wages 100.0%

Crew accessories 100.0%

Administration 100.0%

Other costs 100.0%

Working capital 100.0%

Inventory

value

Accounts

payable

Log

cost

Working

capital

Screenshot 4—LSY’s sensitivity analysis 

scaling factors on the Summary worksheet

Figure 1—The circular relationship between log cost and working 

capital.
7

Although the general inputs must be individually entered, 

it is possible that they could be set as a function of another 

worksheet. For example, if data are available from a survey 

of fuel prices, the fuel price on the General Assumptions

worksheet could be set equal to an average quote or to the 

lowest quote available.

The General Assumptions worksheet is divided into five 

major sections: entered general assumptions; calculated 

weighted average cost of capital (WACC); system capacity; 

resource supply; and a piece count and volume count 

calculator.

Entered General Assumptions

The entered general assumptions include interest rates, other 

general assumptions, and income and capital gains taxes. 

The interest rates, the rates the bank charges for borrowing 

and lending, the inflation rate, and other factors are used 

to determine the weighted average cost of capital and the 

interest paid on loans. The time to start up applies to the 

land and buildings. The Ad valorem (property) taxes apply 

to the land and buildings, chattels, and capital equipment.

Calculated Weighted Average 

Cost of Capital

The WACC depends on the required rate of return on 

equity and debt, and the percentages of equity and debt in 

the capital structure. The required rate of return on equity 

is equal to the bank deposit rate plus a user-entered risk 

premium, which is added to the deposit rate. The return on 

debt is the bank’s interest rate that is charged on borrowed 

capital.

The WACC is first calculated in nominal terms, which 

includes inflation. With inflation taken out, the WACC is in 

“real” terms. The WACC is also calculated before income 

taxes and after a combined income tax rate is deducted. The 

formulas used to calculate the WACC follow:

Before-tax nominal WACC is the before-tax nominal 

weighted average cost of capital. This is the before-tax rate 

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics

Capital costs

7%

Log costs

65%

Other operating costs

24%

Net profit

1%

Financing and taxes

3%

Example data may not

be representative of

actual revenues or costs

Note that profit (loss) is in

addition to the desired rate of

return on invested capital.

Figure 2—Log-sort yard discounted after-tax costs and net profit (loss) as a portion of sales revenue.
8

of return including inflation that the owners would expect to 

earn on all before-tax cash flows. The following formula is 

used:

Before-tax_nominal_WACC 

 = [(Bank_deposit_rate + Return_on_risk_capital) 

 × Equity/Total_capital] 

 + (Bank_lending_rate × Debt/Total_capital)

where Debt/Total capital is the percentage of each piece of 

capital equipment that is financed with debt. This percentage 

is entered on the Summary worksheet. Note that this 

ratio decreases over time as debt is paid off. When new 

equipment is purchased, the ratio increases again. With 

the Debt/Total capital known, the Equity/Total capital is 

calculated using the following formula:

 Equity/Total_capital = 1 – Debt/Total_capital

Before-tax real WACC is the before-tax real weighted 

average cost of capital. This is the before-tax rate of return 

after inflation that the owners would expect to earn on 

before tax and finance cash flows. To adjust for inflation, the 

following formula is used:

After-tax nominal WACC is the after-tax nominal 

weighted average cost of capital. This is the after-tax rate of 

return including inflation that the owners would expect to 

earn on after-tax cash flows. The following formula is used:

After-tax nominal WACC = Before-tax nominal WACC 

 × (1 – Combined_tax_rate)

where the Combined_tax_rate recognizes that state income 

taxes are deductible from federal income taxes and is 

calculated using the formula:

Combined _tax_rate 

 = (Federal_income_tax_rate + State_income_tax_rate) 

 – (Federal_income_tax_rate 

 × State_income_tax_rate)

After-tax real WACC is the after-tax real weighted average 

cost of capital. This is the after-tax rate of return after 

inflation and taxes that the owners would expect to earn on 

capital investment. To adjust for inflation, the following 

formula is used:

System Capacity and Resource 

Supply

LSY’s basic unit of capacity is the operating shift (one shift 

per day). Assumed output is stated in terms of production 

per shift. Labor requirements and capital equipment 

General Technical Report FPL–GTR–184

$(4,000,000)

$(3,000,000)

$(2,000,000)

$(1,000,000)

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual cash flo

w ($)

Before finance and tax

Before tax

After tax

Example data may not be

representative of actual

revenues or costs

Year

Figure 3–Log-sort yard annual cash flows.

Before-tax_

real_WACC 

(1 + Before – tax_nominal_WACC)

(1 + Inflation_rate) = – 1

After-tax_

real_WACC 

(1 + After-tax_nominal_WACC)

(1 + Inflation_rate) = – 1
9

operation are input on a per-shift basis. The maximum 

number of shifts per year will depend on the number of days 

that can be worked for each shift. Labor costs will depend 

on the number of workers required, the hours per shift, and 

the number of operating days per year for each shift.

The volume of logs processed depends on shift capacity, 

the facility full-time operation, the percentage of full-time 

operation, and how efficiently it is used. Shift capacity 

depends on the machine configuration used and is manually 

entered on the Capital Equipment worksheet.

The percent of full-time operation allows for an operation 

to not use its full-time capability. This might happen if the 

start-up process is slower, perhaps as resource supplies 

dictate (for instance, workers are hired for a full shift, but 

do not actually process a full shift’s worth of logs), or as 

labor is gradually trained for the operation. The percent 

of total operating capacity used may represent operational 

inefficiency and delays. As workers gain more experience 

operating the equipment, they may be expected to become 

more efficient and the percentage of total operating capacity 

used may increase.

Knowing the log distribution is critical. Resource supply 

will affect the system throughput volume. Throughput 

volume directly affects revenue. Volume and both piece size 

and revenue are usually positively correlated. However, the 

number of pieces per hour that any given sorting system 

can handle highly depends on log sizes and processing 

requirements. In general, smaller logs mean more logs per 

thousand board feet (MBF), which translates to fewer MBF 

per hour and lower revenue and higher per-unit processing 

costs.

Either volume or number of pieces may limit system 

throughput. If a large portion of the logs handled by a yard 

are larger diameter, then there will probably be a total 

volume limit on the yard’s throughput. If a large portion 

of the logs handled by a yard are small diameter, then the 

throughput limit will probably be related to the number of 

pieces that the equipment can handle.

The log-size distribution over time by either pieces or 

volume is entered in this section. The total number of 

pieces processed and the total volume processed are then 

calculated.

To aid in the piece and volume calculations, piece- and 

volume-count calculators are provided at the bottom of 

this worksheet. In the piece-count calculator, given the 

total volume and the volume distribution, the number 

of pieces and piece distribution are calculated. In the 

volume calculator, given the piece count and the piececount distribution, total volume and volume distribution 

are calculated. These calculators are optional: numbers 

calculated in the piece and volume count calculators are 

not used directly in any other tables, although they may 

be copied and pasted in the Piece Size Distribution or the 

Volume Distribution table.

Note that the log distribution entered in the Resource Supply 

table on the General Assumptions worksheet only affects 

the system materials handling capacity and throughput. The 

distribution is not integrated with either the log input mix 

percentages or with the product recovery percentages on the 

Gross Margin worksheet.

Gross Margin Worksheet—Green Tab

Gross margin = Value of product sales – Log costs

Value of product sales = Σ(Units sold × Price/unit)

Log costs entered in LSY are assumed to be delivered costs 

at the log-sort yard gate. They would incorporate all costs 

required to deliver the logs to that point, including felling, 

delimbing, and bucking, skidding, loading, pre-sorting, and 

transport.

Gross margin is defined this way because log costs are such 

a significant portion of a sort yard’s total costs. If the yard 

cannot cover the basic raw materials costs, then there is no 

point in operating. The gross margin is what is left over to 

pay for manufacturing costs and overheads after the basic 

raw materials costs have been covered.

At the top of the Gross Margin worksheet, the Summary 

Gross Margin Present Values (Screenshot 5) shows the total 

gross margin in total, per piece, per thousand board feet of 

log inputs, and per thousand board feet of log outputs. Log 

costs and gross margin are also shown as a percentage of 

sales.

A number of inputs are required on the Gross Margin

worksheet: product output prices; log costs; input log mix 

percentages over time; and product recovery percentages.

All input data on this sheet are required by log input grade. 

Note: there is no quantified relationship in the model 

between the piece size distribution or volume distributions 

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics

SUMMARY PRE-TAX GROSS MARGIN PRESENT VALUES

Total $/Piece $/MBF input $/MBF output Pct. of sales

Present value of product sales $ 73,211,307 $ 13.51 $ 340.36 $ 358.27 100.0%

Present value of log costs (47,752,761) (8.81) (222.00) (233.68) -65.2%

Present value of gross margin $ 25,458,546 $ 4.70 $ 118.36 $ 124.58 34.8%

Screenshot 5—LSY’s summary gross margin present values
10

input in the General Assumptions worksheet and the log 

input grades in the Gross Margin worksheet. They are 

independent inputs.

It is possible that there is just one input log grade: mixedgrade, mixed-species unsorted logs. If all input logs are the 

same grade and species, or you have no knowledge about 

the differences in outputs that could be produced from the 

input logs, use just input one grade.

Alternatively, log input grades may be divided by whatever 

is logical for the sort yard. This may be price, if different 

log types have different prices. Or the input grades may be 

based on species and log quality (e.g., species, size, branch 

size, sweep, origin). This would make sense if different log 

input types produce different outputs. The only limitations 

are that you can provide no more than 20 log input grades, 

and product recoveries must be provided for each input log 

grade. If several product possibilities are possible from any 

given input grade, the logs should be allocated to the highest 

value uses. For example, although a veneer-grade log could 

be pulped, it should be allocated to veneer. Note that LSY 

does not allocate logs to various product classes, depending 

on market demands and product prices.

A built-in assumption is that the product recoveries for a 

given log input grade do not change over time. However, 

altering the percentages processed in those log input grades 

by year may change the quantity of logs actually processed 

in a given grade over time.

Product outputs are generally by use class (veneer peeler, 

premium sawlog, stud bolts, pulpwood). Some may 

be broken down further into quality grades such as in 

hardwood factory logs. LSY is limited to 19 log output 

grades, including unmerchantable residue; however, when 

combined with the 20 possible species and grades, this 

leaves possibilities for 380 (= 19 × 20) possible different 

product prices.

Other inputs required on the Gross Margin worksheet 

include the following:

	Product output prices and log costs are both expressed 

in Year 0 dollars; that is, prices and costs at the yard’s 

start-up phase. The program assumes that these prices 

and costs will increase by whatever inflation rate 

is specified. The Log Costs Input table allows for 

a production volume loss by log input grade. This 

volume loss may be due to damage, drying, degrading, 

manufacturing waste, etc. The total volume produced 

from each log input grade will be reduced by this 

percentage.

	Log input mix percentages show the allocation of the 

log input mix over time. If the input percentages in any 

given year produce a sum less than 100%, a warning 

will appear. If they sum to greater than 100%, an error 

message will appear.

	Product recovery percentages allocate the products 

that can be produced from each log input grade. Any 

percentages not assigned to individual products by 

default go to unmerchantable residue.

Following the input data are some calculated tables used in 

the Consolidated Cash-Flow table. Additional tables may 

provide useful management information. The calculated 

tables follow:

	Gross margin by log input grade ($)

The last column in this table is the Percent of total gross 

margin, which shows log input grades that contribute 

most to the gross margin. Also, if any log grades 

produce negative gross margins, these grades and the 

cash flows will appear in red. These are important 

because the product revenues from these unprofitable 

grades do not even cover the log costs.

	Gross margin by log product name ($)

Note that the last column in this table is the Percent 

of total gross margin, which shows the log products 

that contribute most to the gross margin. Also, if any 

log products produce negative gross margins, these 

products and the cash flows will appear in red. These are 

important because the revenues from these unprofitable 

products do not even cover the log costs.

	Unit gross margin by log product name ($/MBF 

output)

Note that if there is a negative unit gross margin on any 

product in any year, both the negative margin and the 

product name will appear in red.

	Unit gross margin by log input grade ($/MBF output)

If a negative unit gross margin is on any log input grade 

in any year, both the negative margin and the log input 

grade name will appear in red.

	Sales revenue divided by log input grade ($)

The last column in this table is the Percent of total 

discounted sales revenue, which shows the log input 

grades that contribute most to total sales revenue.

	Sales revenue divided by log product name ($)

The last column in this table is Percent of total 

discounted sales revenue, which shows log products 

that contribute most to total sales revenue.

	Log cost by log input grade ($)

The last column in this table is Percent of total 

discounted sales revenue, which shows log input grades 

that account for the greatest portion of total cost of 

goods sold.

	Log cost by log product name ($)

	Unit log cost by log input grade ($/MBF)

	Gross log input volume by log input grade (MBF)

	Net log production by log input grade (gross input 

less production volume loss) (MBF)

General Technical Report FPL–GTR–184
11

	Net log production by log product name (gross input 

volume less production volume loss) (MBF)

	Year 1 gross margin summary by log input grade and 

log product name ($)

	Year 1 sales revenue by log input grade and log 

product name ($)

	Year 1 log cost summary by log input grade and log 

product name ($)

	Year 1 product volume produced by log input grade

Costing Worksheets—Blue Tabs

Nine worksheets cost out various parts of the log-sort yard 

operation. They consist of a Consolidated Operating Costs

worksheet (dark blue tab) and eight subsidiary worksheets 

(light blue tabs). The costing worksheets draw on common 

inputs from the General Assumptions worksheet. Individual 

cost items also are entered on some of the subsidiary 

worksheets. Outputs from the Consolidated Operating Costs

worksheet are exported into the Summary worksheet.

Consolidated Operating Costs Worksheet—

Dark Blue Tab

The Consolidated Operating Costs worksheet summarizes 

the operating costs. It consolidates information from the 

eight individual subsidiary costing worksheets that provide 

detailed costs for the various components of the logsort yard operation. The Consolidated Operating Costs

worksheet contains all costs apart from the log costs, which 

appear on the Gross Margin worksheet. The Consolidated 

Operating Costs worksheet includes direct operating costs, 

financing, adjustments, and working capital.

On the Consolidated Operating Costs worksheet, the present 

value of the operating costs is calculated on an after tax and 

a before tax basis. This latter amount is used in a break-even 

log cost calculation on the Summary worksheet and is the 

minimum that must be recovered over the project’s life to 

return the non-log variable and fixed costs and the required 

rate of return. Log input costs are included on the Gross 

margin worksheet.

The Consolidated Operating Costs worksheet contains a 

Bottom Line Book Value Summary table for assets and 

loans, with net asset value calculations that may be useful 

for management purposes. Any contingency allowances 

from the Summary worksheet are incorporated into the 

analysis on the Consolidated Operating Costs worksheet. 

Other major assumptions are also shown, along with a cashflow table that consolidates all the operating costs from the 

eight subsidiary costing worksheets:

	Land&Bldg

	Capital Equipment

	Chattels

	Wage

	Crew Accessories

	Admin.

	Other Costs

	Working Capital

Land&Bldg. Worksheet—Light Blue Tab

Land&Bldg. accounts for the costs with land and buildings. 

Land costs include both land and depreciable land 

improvements. However, land itself may not be depreciated. 

Buildings do not include chattels, which are accounted for 

on another worksheet.

Land and buildings may be purchased or leased. If land 

or buildings are leased, then the lease cost is deductible 

from the taxable income in the year it occurs and there is 

no allowable depreciation. If they are purchased, then the 

interest component of any financing is deductible in addition 

to depreciation on the buildings and depreciable land 

improvements.

A difference between chattels and real estate is that whereas 

chattels usually decline in value over time, real estate 

usually holds and may increase its value. In terms of cash 

flows, this only matters at the end of the project. The real 

assets’ terminal values must be accounted for using either 

Book or Then-current values. Book is the historic cost, less 

the IRS-allowed depreciation. Note that for land there is no 

IRS-allowed depreciation.

Then-current may be a better approximation of the actual 

value that is received. The calculation takes the historic cost, 

plus inflation, and for buildings deducts an allowance for 

decline in value due to age. However, unless these terminal 

values are a significant portion of the total project cash 

flows, the terminal value estimate used will not have much 

effect on overall analysis results.

Chattels Worksheet

Chattels are movable resources or property rights other 

than freehold land, such as computers, office equipment, 

and tools. The Chattels worksheet calculates cash flows for 

depreciable building contents, weigh scales, and sorting 

bunks. Chattels could also apply to capital equipment, 

inventory, and loose tools. However, these assets are 

accounted for elsewhere.

The Chattels worksheet is constructed so that as assets 

reach the end of their economic lives, they are automatically 

replaced at their original cost, plus inflation. Terminal values 

are based on assets’ book values.

Some of the inputs for this worksheet come from the 

General Assumptions worksheet. Some are provided on 

the worksheet.

Capital Equipment Worksheet

The Capital Equipment worksheet calculates a 10-year cashflow statement for capital and operating costs associated 

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics
12

with up to eight different types of capital equipment. The 

capital equipment cost calculations are a simplified version 

of the methodology presented by Bilek (2007).

Calculations depend on inputs, some of which are imported 

from the General Assumptions worksheet. Others that apply 

to only these costings are entered on this worksheet under 

Capital Equipment Costing Assumptions.

Among the inputs is one for economic life, which is the 

actual estimated operating life. As this number is varied, the 

Cash-Flow table is automatically adjusted as the equipment 

replacement years change. Operating life is also related to 

repairs and maintenance. As the number of operating hours 

per year increases beyond standard expected hours, repairs 

and maintenance also increase. The implicit assumption is 

that repairs and maintenance will increase in a linear fashion 

as operating hours increase beyond the standard. This is 

accounted for in the Repairs & Maintenance Scaling Factor 

table.

The economic life also affects equipment current values. 

Current value is beginning current, less current depreciation, 

plus inflationary gains. Current depreciation is a straightline rate over the asset’s economic life.

Summary Cash Flows for 

Equipment

Summary Cash Flows for Equipment provide 10-year cashflow summaries of capital costs, revenues, and expenses. 

As with the combined cash-flow summary, Bottom Line 

Summary is at the top of this page. This is to consolidate 

the individual machine costs and provide management 

cost summaries. Following the Summary Cash Flows are 

more detailed cash flows. Below the more detailed cash 

flows are calculations for individual line items, where 

needed, to make these calculations more explicit. Individual 

calculations are included for the following:

	Replacement

	Salvage

	Repairs and maintenance

	Fuel consumption

	Fuel cost

	Oil & lube cost

	Depreciation expense

	Accumulated depreciation

	Tax gain (loss) on salvage

	Book value calculations

	Current value calculations

	Ad valorem (property tax) calculations

	Loan principal

	Bank finance charges

	Loan principal repayments

	Loan balance calculations

	Loan interest payments

Equipment Cash-Flow Models

Equipment cash-flow models are provided for each of eight 

types of capital equipment. Each equipment model follows 

an identical format, showing summary financial measures, 

other financial information, and a Detailed Cash-Flow table 

for specified equipment over the equipment’s expected 

useful life.

Summary Financial Measures

NPV is the investment’s net present value, although in 

this case the term is somewhat of a misnomer. Here, NPV 

represents equipment cost only. It is the sum of discounted 

cash outflows and is the cost today of owning and operating 

the equipment over its economic life.

Before tax & Finance is the return based on only the cash 

flows of the investment without taking into account taxes or 

financing. This is the conventional measure for evaluating 

investments. In theory, the investment decision should be 

separate from the finance decision. The rate of return before 

tax and finance does not change with different tax rates or 

finance options.

Before tax return includes the cash flows resulting from 

the investment’s financing. If the before-tax rate of return 

is greater than the before tax and finance rate of return, 

then there is a favourable gearing effect. In other words, 

financing the equipment with loan money is advantageous to 

the investor. This statement assumes that capital equipment 

is the investor’s major investment, that this loan rate 

represents the investor’s average cost of borrowed capital, 

and that this borrowing will not affect the investor’s ability 

to borrow for other worthy investments.

After tax return includes all cash flows associated with 

the investment and financing chosen. It assumes that if the 

investment suffers a tax loss in any given year, income will 

be available from other sources against which the loss may 

be deducted.

Other Financial Information

Annual loan payment: the total payment (principal

+ interest) required over the loan term. The loan term is the 

shorter of either GDS (General Depreciation Schedule) or 

economic life.

Cash-Flow Table

The Cash-Flow table shows cash flows for a single piece 

of equipment over its expected life. Replacement costs are 

General Technical Report FPL–GTR–184
13

not calculated here. Built into this Cash-Flow table is the 

assumption that all cash costs and all revenues will increase 

at the specified inflation rate. Depreciation expense is the 

only item not affected by inflation. Depreciation expense is 

fixed at the time the asset is purchased and the depreciation 

schedule is chosen.

Wages Worksheet

The Wages worksheet does costing calculations for 

hourly wageworkers only. Management and supervision 

is accounted for on the Admin worksheet. Wages uses 

inputs from the General Assumptions worksheet, as well as 

some inputs that are entered on this worksheet in order to 

calculate wages cash flows for hourly wageworkers.

Important! Salaried employees should NOT be included 

as one of the crew when working out the wages expense. 

Salaried employees are included in the Admin worksheet.

The Wages worksheet is divided into three major sections: 

Summary Tables, Assumptions, and Calculations.

The Summary Tables portion of the Wages worksheet 

has wages and productivity. Wages Summary tables are 

by worker type (scalers, graders, etc.) and by wage type 

(hourly, overtime, and fixed costs). Both totals should be 

identical. The Productivity Summary shows pieces and 

MBF per hour, per shift, and per year.

The Assumptions portion of the Wages worksheet is 

divided into four sections: Employees required and hired; 

Standard and available work hours; Base hourly wage rates 

plus allowances by worker type; and Individual worker 

accessories.

Hourly employees required is the number of employees by 

worker type that are required for each shift. You should fill 

in this table even if you plan to run just one shift. This will 

prevent later errors if any “what if” scenarios are run with 

the shifts. The number of shifts that are actually worked 

is entered on the General Assumptions worksheet in the 

Facility Full-Time Operation Shift Hours table.

Hourly employees hired is the number of employees 

actually hired by employee type over the years. If any overworked errors appear, it means that for at least one year 

and one employee type, not enough hours are available 

to meet the shift requirements. This means that either 

shift requirements have to be decreased, the number of 

available hours has to be increased in the Standard and 

Available Overtime Hours/Worker input table, or the 

number of employees hired in at least one year needs to be 

increased. The years in which there are problems will appear 

highlighted. They are also shown farther down by worker 

type in the Wages and Hours Calculation by Worker Type 

tables.

Minimizing Hourly Wages Costs

Depending on fixed costs/worker and extra premium 

paid for overtime hours, you may possibly reduce 

total wages by hiring more workers. It is possible to 

determine the number of workers that will minimize 

hourly wages costs either by trial and error, or by 

using Excel’s built-in “Solver” package, a linear 

programming model. Linear programming is a 

technique to maximize or minimize a specified goal 

subject to certain constraints.

To minimize total wages costs, first make sure that 

Solver is installed. To do this go to Excel’s “ToolsAdd ins.” Next, have Solver minimize the negative 

sum of total employment costs while allowing 

the number of employees hired each year to vary. 

Constraints would be that total remaining available 

hours for each employee group for each year must 

be greater than or equal to zero, the number of 

employees hired each year in each group must be 

greater than or equal to zero, and the number of 

employees hired each year should be an integer.

If production is going to be changing over time, it 

is better to do this optimization a number of times 

and year by year. If production is not going to be 

changing, a faster and more accurate solution may be 

achieved by just allowing the number of employees 

over the first year or two to change. Realistically, 

only employment over the first few years will be 

of concern. After that, economic and operating 

circumstances may have changed and you will 

need to re-analyze the operation.

The Standard Work Hours and Available Overtime Hours 

Wages worksheet, (rows 85–96) shows the number of hours 

for which a worker will be paid ordinary hourly rates and 

the number of available hours for overtime work.

	Standard work hours per worker is calculated on 

a template that incorporates weekends and holidays. 

Vacation days and allowable sick days are also included. 

The standard hours/shift is imported from the General 

Assumptions worksheet. Implicit in the calculations is 

the assumption that if a worker is required to work more 

hours than the equivalent of one shift, then the worker 

will be working overtime.

	Available overtime hours per worker is the number 

of hours per year available for overtime. Standard shift 

hours plus available overtime hours is the maximum 

number of available work hours. If this total is exceeded 

by any worker type, then a warning will appear in the 

Employees Required & Hired table.

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics
14

Hourly wages and workers’ fixed costs are calculated in 

the Base Hourly Wage Rates Plus Allowances table. To 

unadjusted hourly wage rates are added adjustments for 

vacation pay, statutory holiday pay, sick leave, retirement, 

and other allowances. These are entered as percentages of 

the unadjusted hourly wage rates. To the unadjusted rates 

are added annual fixed costs. These are entered as dollar 

amounts and include health insurance, liability insurance, 

labor accessories (from the next table), and other fixed costs.

Accessories used by individual workers are entered and 

tabulated in the Individual Worker Accessories Costs 

table. Such accessories might include ear muffs (hearing 

protection), gloves, hard hats, high-visibility vests, and 

safety boots. These are annual costs that are totalled in the 

Base Rate Plus Allowances table, above.

The Calculations portion of the Wages worksheet is divided 

into Shift hours required and Wages and hours calculations 

by worker type.

The Shift hours required calculation computes hours 

required by each employee type, depending on the number 

of operating shifts each year.

The Wages and Hours Calculation by Worker Type contains 

individual tables calculating total employment cost and 

hours worked for each worker type. For each worker type, 

if more hours are required than the standard hours available, 

then overtime hours will be automatically charged. If more 

overtime hours are required than are available, then the total 

remaining available hours will be negative and a warning 

will appear.

Crew Accessories Worksheet

The Crew Accessories worksheet does the costing 

calculations for gear that is used by the entire crew, rather 

than by individual workers. This includes fire and safety 

equipment, as well as loose tools. The cost of these tools is 

summed and divided by their expected operating life to give 

a daily cost.

These tools are technically chattels. That is, they should be 

capitalized and depreciated. However, the total cost of these 

accessories is so small compared with the total job cost that 

more accurate accounting for these capital costs would not 

significantly change the costings.

Administration Worksheet

The Admin. worksheet does the costing calculations for 

the administration expenses and the salaried employees’ 

earnings. Administration expenses include fixed yearly 

salaries, clerical expenses, other professional fees, yearly 

communications expenses, and other overheads.

Other Costs Worksheet

The Other Costs worksheet is a template into which other 

costs that are not otherwise a part of the analysis may be 

incorporated. An example might be for road workers.

Working Capital Worksheet

The Working Capital worksheet calculates the amount of 

working capital required by year. Working capital is the 

funding needed for short-term financing of cash on hand, 

accounts receivable, inventory, etc. We assume that invested 

working capital is recovered at the end of the planning 

period.

Working capital and calculation of break-even log input 

costs present some difficulties. However, if working capital 

is not a significant proportion of total expenses, the effect on 

break-even calculations is not significant. See the discussion 

under the Summary worksheet description, above.

Capital Equipment Library Worksheet

The Capital Equipment Library worksheet is a place 

where costs and equipment capacities may be stored for 

individual pieces of equipment and for typical equipment 

configurations. Information may be copied from the Capital 

Equipment Library and directly into the Capital Equipment

worksheet.

Model Assumptions

Incorporated into any model are critical assumptions that 

have a significant effect on results. If those assumptions 

are reasonable, then the model’s results may be used as a 

reasonable guide. If those assumptions are not reasonable, 

then the model’s results are worthless.

Like all models, LSY has some in-built assumptions.

	Inflation will affect all variables (except for depreciation) 

equally. Furthermore, all costs and revenues will increase 

annually at exactly the rate of inflation. If you believe 

that some costs are increasing faster than others, they 

may be individually adjusted.

	All cash flows occur at the end of each year. This 

is a basic simplifying assumption common to most 

discounted cash-flow analysis. In reality, cash flows 

occur throughout the year. However, the accuracy gained 

by trying to account for cash flow is lost in all the other 

assumptions (for example, inflation rate, interest rates, 

salvage value, repair and maintenance costs) that must be 

made.

	The loan interest rate will not be affected by the amount 

of gearing. Within reasonable gearing ranges, the loan 

interest rate will be approximately constant. A bank or 

finance company, however, would want a higher rate of 

return if the firm’s gearing sets too high. 

	Any tax losses will be deductible in the year in which 

they occur. Implicit in this assumption is a further one 

that tax losses may be deducted from income from some 

other source. As a result, losses are not carried forward. 

If losses did have to be carried forward, this would lower 

the owners’ rate of return.

General Technical Report FPL–GTR–184
15

	Built into the capital equipment model is an assumption 

that the equipment will be replaced at the end of its 

economic life, which is measured in years. However, 

equipment maintenance depends on how intensively 

equipment is used. If the number of hours per shift or 

the number of shifts per year is increased, maintenance 

costs will increase along with other operating costs, but 

economic life will not change.

LSY Limitations

	LSY is not a production optimizer. That is, given the 

species and diameter distributions of log inputs along 

with the processing costs, grade specifications, demand 

quantities, and prices for the outputs, LSY will not tell 

the optimum production mix.

	Although LSY offers the option of leasing or purchasing 

land and buildings for the sort yard, the program is not 

structured to account for the possibility of leasing some 

or all of the capital equipment used in the yard.

	LSY does not calculate system capacity. That is, given 

a number of pieces of capital equipment, LSY will 

not calculate how many pieces or what volume that 

equipment configuration could handle. Similarly, LSY 

cannot be used to tell what system configuration will 

work best to handle a given mix and volume of logs.

	LSY does not calculate output products. Given a mix 

of logs, LSY cannot calculate the products that could 

be manufactured and sorted from that mix. You must 

specify both the input and output mix.

	Although LSY’s log inputs and outputs do not have to 

be in the same units, all the log inputs (on the General 

Assumptions worksheet) and all the outputs (on the 

Gross Margin worksheet) should be in the same unit. 

The program is not set up to make conversions, for 

example, from tons to thousand board feet log scale.

	LSY is set up to automate a number of calculations 

related to cash flows generated by a log-sort yard. As 

with all computer programs, outputs are only going to 

be as good as the input data. If results of the model are 

not believable, there is probably a very good reason for 

it and the input data and assumptions should be carefully 

checked.

Running a Break-Even Log Costing 

in LSY

To determine a break-even log costing using the model, 

proceed according to the following steps:

1. Enter the required inputs (see Appendix 1).

2. Test the sensitivity of the inputs to changes in key 

variables. Suggested variables to test include the 

following:

	Sales revenues (in Summary worksheet or in Gross 

Margin)

	Log input costs (in Summary worksheet or in Gross 

Margin)

	Owners’ allowable return on risk capital (in General 

Assumptions)

	Owners’ debt percentage (in Summary worksheet)

	Capital equipment costs (in Summary worksheet or in 

Capital Equipment)

3. Calculate the break-even log cost in the Summary

worksheet using the “Optional summary log input 

cost.” To do this, set all log costs in the Gross Margin

worksheet equal to the Optional summary log input cost 

on the Summary worksheet. Then adjust the Optional 

summary log input cost so that the net profit (loss) in the 

Revenue & Cost Summary is just above it is $0.

IMPORTANT! the Optional summary log input cost 

must be a number and not a reference to another cell.

You can do this manually, and if you do, a good guess for 

a break-even log cost is the calculated break-even log cost, 

just below the Optional summary log input cost. Although 

this calculated cost will not be exact, because of the 

interaction of log cost, inventory value, accounts payable, 

and working capital, it will be close.

WARNING! If you set the Optional summary log input cost 

equal to the Calculated break-even log cost, copy and paste 

the break-even value (not a cell reference) into the Optional 

summary log input cost. Otherwise there will be a circular 

reference in the Working Capital calculation. Alternatively, 

you can do this using the Goal Seek function within 

Microsoft Excel. To use the Goal Seek tool, after opening 

it, set the net profit (loss) in the Revenue & Cost Summary 

to $0 by allowing the program to change the Optional 

summary log input cost.

When the net profit (loss) is $0, it should say “Operation is 

at break-even (incl. profit allowance)” and the after-tax IRR 

should be equal to the after-tax WACC.

Conclusions

LSY is a large, powerful, and complex program. It can 

provide the focus for a pre-feasibility or financial feasibility 

analysis for a log-sort yard. It estimates cash flows for 

capital budgeting purposes. It can be used to estimate 

overall profitability or to calculate how much could be 

paid for logs and still break even. It can determine overall 

average manufacturing costs for an operation in which 

capital costs are varied and infrequent. It can identify which 

grades of input logs are the most and least profitable, and 

highlight any that can only be processed for a loss. It can 

also identify which products are the most profitable and 

which, if any, can only be produced for a loss. It can be 

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics
16

used to plan hiring for the purposes of balancing fixed costs 

and overtime to minimize total wages costs. Built into the 

program is a feature to store capital cost data by machine 

type and equipment configuration so that costs of different 

options can be quickly compared. Sensitivity analysis 

scaling factors and cost contingency allowances are built in 

so that “what if” analysis may be quickly performed.

Although the program is powerful, this power does come at 

a cost. The program is large and complex and requires a user 

who is familiar with sort yards in order to provide realistic 

input data. It also requires someone familiar with financial 

feasibility analysis in order to understand which outputs are 

important for the particular scenario that is being tested. As 

with any financial feasibility analysis, if the outputs look 

too good to be true, something may be wrong with the input 

assumptions.

References

Bilek, E.M. (Ted). 2007. ChargeOut! Determining machine 

and capital equipment charge-out rates using discounted 

cash-flow analysis. U.S. Department of Agriculture, Forest 

Service, Forest Products Laboratory. General Technical 

Report FPL–GTR–171. 33 p. Available online: http://www.

fpl.fs.fed.us/documnts/fplgtr/fpl_gtr171.pdf

Brealey, Richard A. and Stewart C. Myers. 1991. Principles 

of Corporate Finance. Fourth edition. International edition. 

New York: McGraw-Hill, Inc. pp. 1–125.

Dramm, J. R., R. Govett, T. Bilek, G.L. Jackson. 2004. 

Log sort yard economics, planning, and feasibility. U.S. 

Department of Agriculture, Forest Service, Forest Products 

Laboratory. General Technical Report FPL–GTR–146. 31 p.

Available online: http://www.fpl.fs.fed.us/documnts/fplgtr/

fpl_gtr146.pdf

General Technical Report FPL–GTR–184
17

Appendix 1—Log-Sort Yard 

User-Inputs by Worksheet

Summary

The Summary worksheet contains all the bottom line 

information: net present values, internal rates of return, 

break-even log costs, and 10-year cash flows. In addition, 

it contains variable inputs to allow users to conduct a 

sensitivity analysis.

Sort yard name is the name of the log-sort yard.

Year is the operating year for the costing. The year entered 

here is also referred to as Year 0. Year 0 is right now, today. 

Year 1 is exactly one year from today. Year 2 is exactly two 

years from today, etc.

Other identifying run codes are any other names or letters 

associated with the run to identify it.

Sensitivity analysis scaling factors are percentages that 

may be varied up or down from 100% to test the sensitivity 

of the net present values, rates of return, and break-even log 

costs to changes in various costs and revenues.

Cost contingency allowances are percentages that may be 

varied up or down from 0% to allow for a cushion from the 

point estimates for various costs. While the cost contingency 

allowances work in a similar fashion to the sensitivity 

analysis scaling factors, they may be adjusted independently 

of the sensitivity analysis to allow for greater uncertainty 

regarding various costs.

Optional summary log input cost are a cost that may be 

used to calculate the true break-even log cost. Alternatively, 

this cost may be used to quickly change all the log costs to 

see the effect on the financial indicators from changing log 

input costs. To use this cost, set the log costs on the Gross 

Margin worksheet equal to this cell. Make sure that this cell 

is an absolute number and not a reference to another cell.

Debt/total capital is the target debt ratio—the percentage 

of assets and working capital that is financed with debt. 

Note the built-in assumption that this ratio decreases over 

time as debt is paid off. When new assets are purchased, the 

ratio increases again. There is also a built-in assumption that 

all outstanding debt will be paid at the end of the planning 

period.

This number is important in order to determine debt, loan 

payments, and total equity capital. In turn, if the cost of 

debt differs from the cost of equity, the level of debt will 

have an effect on the weighted average cost of capital. This 

ratio affects loans on land and buildings, chattels, capital 

equipment, and working capital. It also affects the beforetax nominal weighted average cost of capital (WACC), as 

the WACC is a mix of the cost of debt and the cost of equity.

General Assumptions

The General Assumptions worksheet contains most of the 

general assumptions—assumptions that are used as inputs 

on more than one worksheet. Entering them here will 

change them automatically throughout the model.

Entered General Assumptions

Interest Rates

Bank deposit rate is the effective annual interest rate 

received for savings at the bank. The effective annual 

interest rate is the rate that would be charged if payments 

were received or due only once, at the end of each year. 

It is a nominal rate that includes inflation.

The bank deposit rate is used in the determination of the 

owners’ before-tax nominal weighted average cost of 

capital.

Bank lending rate is the basic commercial credit rate open 

to the owners. It is an effective annual nominal rate. Here an 

average rate should be used reflecting both the short-term 

financing required for day-to-day operations and working 

capital and the longer-term financing required for capital 

equipment loans.

The bank lending rate is used in the costings for chattels, 

capital equipment, and working capital. It is also used as the 

cost of debt component in the determination of the beforetax nominal weighted average cost of capital.

Bank financing charge is a percentage of the loan amount 

paid up front, at the start of the loan.

The bank financing charge is used at the origination of all 

loans (mortgages, chattels, capital equipment, and working 

capital).

Inflation rate is the forecast average annual rate of 

inflation for costs and revenues in the logging industry. 

An appropriate inflation rate should be based on forecasts 

for the industry, rather than on general consumer products 

inflation.

The inflation rate is important because it affects the real 

weighted average cost of capital. It also has an effect on real 

depreciation rates and capital equipment charge-out rates 

using the break-even capital costing method. Built into the 

model is the assumption that all cash costs and all revenues 

will increase at the specified inflation rate.

Required pre-tax premium on risk capital is a nominal 

interest rate premium over and above the (safe) bank deposit 

rate that is appropriate for the owners to earn on their 

invested capital. It represents the risk that the owners bear 

by having funds invested in the logging industry rather than 

in the bank.

The required pre-tax premium on risk capital is included in 

the weighted average cost of capital.

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics
18

Time to construct and start up (in months) is the time it 

takes to construct the sort yard and make it operational. All 

start-up costs are compounded forward to the start-up date 

(Year 0).

Ad valorem (property tax) mill rate ($/$1000) is the 

tax rate that applies to real property, chattels, and capital 

equipment. Ad valorem taxes are expressed as a mill rate, 

that is, $/$1000. For example, a mill rate of 32 represents 

an annual tax of $32 for every $1000 of net asset value. Ad 

valorem taxes are on the current value of land and buildings, 

and on the book value of chattels and capital equipment.

Income & Capital Gains Taxes

Income taxes include state and federal income taxes. The 

Combined tax rate assumes that state income taxes are 

deductible from federal income taxes. The formula is

Combined_tax_rate = (Federal_income_tax_rate + State_

 income_tax_rate) 

 – (Federal_income_tax_rate 

 × State_income_tax_rate)

These numbers are important to determine the after-tax rate 

of return on cash flows. Income taxes apply to all earned 

income and excess depreciation. That is, if an asset is sold 

for more than its book value, but less than its historic cost, 

the difference is charged as ordinary income.

Capital gains taxes apply to increases in asset values over 

and above their historic costs.

Social Security taxes are federal taxes that apply to both 

hourly wages and administrative salaries. The percentage 

applied as well as the maximum income that is taxed are 

entered. This calculation does not incorporate the effect of 

individual workers’ decisions regarding flexible spending 

accounts.

Medicare is a federal tax on wages and salaries.

Workers’ compensation is a tax on wages and salaries that 

varies by state.

Unemployment insurance is a tax on wages and salaries 

with federal and state components. The federal component 

is similar to Social Security in that is a percentage and a 

maximum wage or salary is taxed. The state component may 

be structured in similar manner to the federal component, 

but rules and regulations will vary.

Calculated Weighted Average Cost of Capital (WACC)

Before-tax nominal WACC is a weighted average of (the 

Bank deposit rate + the Required return on risk capital) 

times the owners’ equity percentage, plus the Bank lending 

rate times the owner’s debt percentage.

Before-tax real WACC

[(1 + Before-tax nominal WACC)/(1 + Inflation rate)] – 1

After-tax nominal WACC

Before-tax nominal WACC × (1 – (Combined_income_tax_rate))

After-tax real WACC

[After-tax nominal WACC / (1 + Inflation rate)] – 1

Equity/Total capital: 1 – Target_debt_ratio

System Capacity

Total shift capacity

Costings are based on the amount of wood processed per 

standard operating shift. The capacity may be based either 

on the number of pieces/shift or on volume, represented by 

MBF/shift. Although one should be checked (with “√” or 

“x”), the default is pieces/shift.

Facility full-time operation shift hours

Operating days/year is the number days/year each shift 

will be operating when the yard is operating full-time.

Note that although these provide the inputs for the full-time 

operating capacity, the amount of capacity used is entered 

separately for each year.

Operating days/year is used in the calculation of shift 

hours/year. Ultimately, these figures are used in wages 

calculations, equipment costings, and production 

calculations.

Standard hours/shift is the number of hours each shift 

will operate. This number is used to calculate the shift 

hours./year. Standard hours/shift is used in the calculation 

of shift hours/year. Ultimately, these figures are used in 

wages calculations, equipment costings, and production 

calculations.

Capacity Utilization

Percent of full-time operation utilized are percentages by 

year of as the facility’s full-time operation, as defined by 

you. The numbers are used to calculate the number of shifts/

year. They could be used to show that at first only one shift/

year is operating, but in later years that two, three, or more 

shifts are operating.

Percent of total operating capacity utilized are 

percentages of the system full-time capacity operating 

capacity defined previously.

These percentages are used to calculate the number 

of pieces and volume processed. They may be used to 

represent decreased efficiencies when the facility is new 

(that is, workers will be less efficient when they begin and 

more efficient as they gain more experience working with 

the equipment and together).

Resource Supply

Piece size or Volume Distribution is a table indicating the 

percentage of total input pieces or volume by butt diameter 

over the 10-year planning horizon.

General Technical Report FPL–GTR–184
19

Piece and volume count calculators are provided at the 

bottom of the worksheet to aid in calculation of the 

percentage distribution of pieces processed (if the volume 

distribution is known) or the volume processed (if the 

number of pieces processed is known). In both these 

calculations, the volume/piece input in this table is a 

critical input.

Piece size distribution with pieces fixed or Piece size 

distribution with volume fixed is a table calculating the 

total input pieces (pieces/shift) by butt diameter over the 

10-year planning horizon. The exact title of this table will 

depend on whether the system capacity is limited by pieces/

shift or by thousand board feet (MBF)/shift.

Note that piece count and volume count calculators are 

provided at the bottom of the worksheet to aid in the 

calculation of the number of pieces processed (if the 

volume distribution is known) or the volume processed (if 

the number of pieces processed is known).

Volume distribution with pieces fixed or Volume 

distribution with volume fixed is a table calculating the 

total input volume (MBF/shift) by butt diameter over the 

10-year planning horizon. The exact title of this table will 

depend on whether the system capacity is limited by pieces/

shift or by MBF/shift.

Note that piece count and volume count calculators are 

provided at the bottom of the worksheet to aid in the 

calculation of the number of pieces processed (if the volume 

distribution is known) or the volume processed (if the 

number of pieces processed is known).

Piece count calculation (pieces/year) is a table calculating 

the total input pieces processed (pieces/year) by butt 

diameter over the 10-year planning horizon.

The totals from this table are used in the Wages and Capital

equipment worksheets to calculate productivity.

Volume calculation (MBF(input)/year) is a table 

calculating the total input volume processed (MBF/year) by 

butt diameter over the 10-year planning horizon.

The totals from this table are used in the Wages and Capital 

equipment worksheets to calculate productivity.

Piece count and volume count calculators (used to aid in 

calculating appropriate pieces/shift and volumes/shift)

Piece count calculator (if volume distribution is known)

Given total volume processed (MBF/shift); the percentage 

distribution of volume/shift by butt diameter size class; 

and the volume per piece (MBF/piece), the table calculates 

pieces/shift by diameter class and total pieces/shift;

the percentage distribution of pieces/shift by diameter class; 

and volume processed (MBF/shift) by diameter class.

Volume calculator (if piece count distribution is known)

Given total pieces/shift processed; the percentage 

distribution of pieces/shift by butt diameter size class; 

and the volume per piece (MBF/piece), the table calculates 

the volume/shift by diameter class and total volume/shift; 

the percentage distribution of volume/shift by diameter 

class; and pieces processed (pieces/shift) by diameter class.

Gross Margin

The Gross Margin worksheet calculates the gross margin 

(sales revenue minus log input cost) for each year of the 

planning period. All the costs and revenues entered on 

this sheet are in pre-start-up dollars. That is, they will be 

increased by the specified inflation rate over the start-up 

period and for the first year.

The model allows you to specify up to 20 different log input 

grades. The grades should be based either on different input 

prices for the different grades, or on different products or 

different product prices that could be produced from the 

input grades. The grades could be divided by species, such 

as pine veneer log; pine large saw log, pine small saw log, 

pine pulpwood, pine unmerchantable; fir veneer log; fir 

large saw log, and fir small saw log.

The model allows you to specify up to 19 different products. 

Each product may have a different price, depending on what 

log grade it is produced from. The combined product output 

price matrix allows for a total of 380 different product 

prices, although that amount of detail is not warranted 

unless there is also detailed and accurate log supply and 

product recovery information by log input grade.

The inputs required on this worksheet are as follows:

Year 0 product output prices are by product output and log 

input grade name. The prices are as of the start-up date of 

the yard.

Year 0 log costs are by log input grade. The prices are as 

of the start-up date of the yard. This table also contains a 

column for the production volume loss by log input grade. 

The production volume loss is losses in the input volume 

because of trimmings, shrinkage, and degrade.

To calculate the break-even log cost, set these Year 0 log 

costs equal to the Optional summary log input cost on the 

Summary worksheet or from the Assumptions above. Then 

on the Summary worksheet, either use iterative calculations 

or Goal Seek (in the Tools menu), setting the Net profit 

(loss) equal to $0 by changing the Optional summary log 

input cost.

Operationally, this section may also be used to find the 

marginal value of an additional log species or grade, given 

other log costs and returns, and the projected revenue from 

new log species or grade. First, make sure that the log cost 

on the new species or grade is an absolute number (not a cell 

reference). Use Goal Seek, setting the net profit (loss) on the 

Summary worksheet to $0 by changing the log cost on the 

new species or grade on this worksheet. The resulting log 

LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics
20

cost will be the maximum amount that can be paid for the 

new logs and still provide the owners with their specified 

rate of return.

Input log mix percentages are by log input grade by year 

over the 10-year planning period. They allow the analyst to 

change the input grade mix to reflect the possible changing 

nature of the resource. The percentages should be worked 

out with a resource or procurement forester.

Product recovery percentages are by log input grade 

and product type. They show the percentage of each 

log input grade that will go into each output grade. The 

product recovery percentages should be put together with 

the production and marketing managers. The marketing 

manager should be able to recommend which possible log 

manufacturing products would be preferable from either a 

price or a volume perspective.

Consolidated Operating Costs

The Consolidated Operating Costs worksheet has no userdefined inputs, but consolidates the operating costs from all 

the subsidiary worksheets.

Land & Bldg.

The Land&Bldg. worksheet provides the costing 

information for the real estate portion of the project. The 

user-defined inputs on this worksheet are broken down into 

various input tables.

General assumptions

Some of the general assumptions are imported. Those that 

you must provide on this worksheet follow.

Mortgage term (years) is the number of years to use in the 

calculation of the mortgage payment. 

Bank mortgage interest rate is the interest rate charged by 

the bank on its mortgages for land and buildings.

Land

The inputs for the land costing follow.

Initial bare land purchase price ($/acre) is the cost of 

the land, including non-deductible improvements. Such 

improvements include “...public utility initial clearing 

and grading land improvements as specified in Rev. Rul. 

72-403, 1972-2 C.B. 102” (Internal Revenue Service. 2000. 

Table B-1. P.90).

Land area required (acres)

The land area required for the log-sort yard.

Real annual increase (decrease) in land value allows 

for increases or decreases in land prices that are faster 

than inflation. The real increase (decrease) is in addition 

to inflation. If land changes in value at the same rate as 

inflation, then this value should be 0%.

Annual land lease cost ($/acre)

This figure is not needed if the land is purchased.

Annual R&M expense (pct. of current capital value)

is the expense for repairs and maintenance on the land 

(plowing, fire protection, etc.).

Annual insurance expense (pct. of current capital value)

is the expense for property insurance on the land.

Buildings

Initial building purchase/construction cost is the cost to 

purchase or construct the building.

Real annual increase (decrease) in building value allows 

for increases or decreases in building values that are faster 

than inflation. The real increase (decrease) is in addition to 

inflation. If buildings change in value at the same rate as 

inflation, then this value should be 0%.

Annual building lease cost ($): this figure is not needed if 

the building is purchased.

Annual R&M expense (pct. of current capital value) is 

the expense for repairs and maintenance on the buildings.

Annual insurance expense (pct. of current capital value)

is the expense for property insurance on the buildings.

Payment method indicates whether land and buildings are 

either purchased or leased. One should be selected with a 

check (√) or an “x.”

Depreciable land improvements include roads, fences, a 

water system, and other improvements.

The IRS allows depreciation expense using either straight 

line or declining balance depreciation on depreciable land 

improvements. If declining balance depreciation is used, 

then the maximum allowable declining balance factor is 

150%.

Buildings

The IRS allows only straight-line depreciation over either 

39 years or 50 years to be used for buildings.

Chattels

Chattels include all long-term assets in a project that are 

not real estate or capital equipment. Chattels include weigh 

scales, sorting bunks, computers and peripheral equipment, 

office machinery, and office furniture and fixtures. Although 

the term, “chattels” could also apply to inventory and loose 

tools, those assets are accounted for elsewhere.

The inputs required on this worksheet follow.

Insurance (pct. of replacement cost) is insurance for the 

chattels.

No. required is the number of machines of each type that 

are needed.

General Technical Report FPL–GTR–184
21

Cost/unit is the Year 0 cost for the chattels.

Annual R&M pct. of straight-line depreciation is repairs 

& maintenance as a percentage of straight-line depreciation 

taken over the asset’s economic life.

General Depreciation System (GDS) life (years) is the 

chattel’s life using the general depreciation system. GDS 

values come from IRS tables. See for example: Department 

of the Treasury, Internal Revenue Service. 2000. Publication 

946, “How to Depreciate Property.”

ADS life (years) is the chattel’s life using the alternative 

depreciation system.

ADS values come from IRS tables. See for example: 

Department of the Treasury, Internal Revenue Service. 

2000. Publication 946, “How to Depreciate Property.”

Economic life (years) is the chattel’s actual estimated 

useful life.

The economic life may be greater or less than the 

depreciable life allowed by the Internal Revenue Service. 

The asset will be automatically replaced at the end of its 

economic life. The replacement price will be the original 

cost plus an inflation adjustment.

Salvage estimate is the estimated value, in Year 0 dollars at 

the end of the economic life.

The salvage estimate is used for current value calculations. 

These values are automatically increased for inflation.

Depreciation method is a code for the depreciation method 

used. The methods and the codes are the same as for 

buildings.

Note that the depreciation codes under the individual 

chattels may be entered separately. However, they 

are presented in black because they are linked to the 

Depreciation method input in the General Entered 

Assumptions. Usually the depreciation method used will be 

the same for all chattels.

For tax purposes, chattels may be depreciated using either

straight-line or declining-balance depreciation. The 

depreciation codes are as follows:

DB—declining-balance (This feature will automatically 

switch to straight-line depreciation if the latter offers a 

higher write-off);

SLA—Straight-line depreciation over an asset’s recovery 

period specified by the Internal Revenue Service (IRS) 

under the (GDS). The periods are generally shorter and offer 

accelerated or higher depreciation compared with the IRSallowed Alternative Depreciation System.

SLADS—Straight-line depreciation over an asset’s 

recovery period specified by the IRS under the Alternative 

Depreciation System (ADS). These periods are generally 

longer and offer smaller depreciation write-offs each period 

compared with the recovery periods allowed under the IRSallowed General Depreciation System.

SLEL—Straight-line (economic life) depreciation over an 

asset’s economic life is not an IRS-approved method. 

K—“K”ustom (The IRS would only approve “Kustom” 

depreciation if it followed an IRS-approved method.)

Declining-balance factor is a percentage used in declining 

balance depreciation.

With chattels, a maximum of 200% is currently allowed. 

This is known as “double declining-balance depreciation.” 

Using a declining-balance factor of 200% allows for a faster 

write-off and greater tax savings, provided that there is 

sufficient offsetting revenue. The IRS also allows a factor of 

150%.

Capital Equipment Library

The Capital Equipment Library is the final worksheet in the 

model. Its use is optional. It holds data on machinery and 

equipment and machinery and equipment configurations that 

might be used in the log-sort yard. Data for the machines 

may be entered individually by machine type. Alternatively, 

it may be entered by system configuration. The data in the 

capital equipment library is meant to be copied and pasted 

into the table, Entered Assumptions by Capital Equipment 

Type on the Capital Equipment worksheet as needed.

System description name identifies the combination of 

equipment used.

Expected average productivity (either pieces/shift or 

MBF/shift) is the base input processing productivity 

expected from this combination of capital equipment.

Capital equipment name is the name of the equipment 

used.

Initial cost is the Year 0 cost of the equipment. The 

replacement cost of this equipment will be increased for 

inflation.

GDS life (years) is the equipment’s’ depreciable life under 

the general depreciation system (see: IRS Publication 946).

ADS life (years) is the equipment’s’ depreciable life 

under the alternative depreciation system (see: IRS 

Publication 946).

Economic life (hours) is the equipment’s’ practical 

operating life in hours. The expected operating life (hours) 

is used in calculating repairs and maintenance costs. The 

economic life in hours divided by the economic life in years 

provides an economic constant hours/year. If the equipment 

is used more than this rate, then repairs and maintenance 

will be increased.

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Economic life (years) is the equipment’s’ practical 

operating life in years.

The expected operating life (years) is used in calculating 

repairs and maintenance costs. It is also used to determine 

the year(s) in which the equipment will be replaced.

Salvage estimate is used for current value calculations and 

to determine capital gains or losses when the equipment is 

sold.

The salvage estimate is the estimated value, in Year 0 

dollars, at the end of the equipment’s economic life. 

These values are automatically increased for inflation.

Kilowatts is the size of the diesel engine.

The size of the engine, combined with the fuel consumption 

rate provides the hourly fuel consumption (gal/hour).

Fuel consumption (gal/Kw/hr) is the rate of fuel 

consumption.

The rate of fuel consumption, combined with size of the 

engine, in kilowatts, provides the hourly fuel consumption 

(gal/hour).

Oil & lube (% of fuel) is a percentage of total fuel cost.

Other annual costs ($/year) are any other annual costs.

Avg. annual R&M (%)

Average annual repairs and maintenance are an estimated 

percentage of the economic life depreciation. Repairs and 

maintenance will be increased if the equipment is used more 

hours than its average annual economic rate (the economic 

life in hours divided by its economic life in years). It will 

be decreased if the equipment is used fewer hours than its 

average annual economic rate.

Depreciation method is a code for the depreciation method 

used. The methods and the codes are the same as for chattels 

(above).

Note that the depreciation codes under the individual pieces 

of capital equipment may be entered separately. However, 

they are presented in black because they are linked to 

the Depreciation method input in the General Entered 

Assumptions. Usually the depreciation method used will be 

the same for all pieces of capital equipment.

For tax purposes, capital equipment may be depreciated 

using either straight line or declining balance depreciation. 

The depreciation codes follow.

	DB—declining-balance (note that it will automatically 

switch to straight line depreciation if the latter offers a 

higher write-off)

	SLA—Straight-line (depreciation, accelerated)

	SLADS—Straight-line (depreciation system)

	SLEL—Straight-line (economic life). Straight-line 

depreciation over an asset’s economic life is not an IRSapproved method.

	K—“K”ustom. The IRS would only approve “Custom” 

depreciation if it followed an IRS-approved method.

Declining-balance factor is a percentage used in decliningbalance depreciation. With capital equipment, a maximum 

of 200% is currently allowed. This is known as double 

declining-balance depreciation. Using a declining-balance 

factor of 200% allows for a faster write-off and greater tax 

savings, provided that there is sufficient offsetting revenue. 

The IRS also allows a factor of 150%.

No. used is the number of pieces of capital equipment of 

each type that are used.

Total operating hours/shift is the number of hours/shift 

that all the equipment in this category is operating.

If two or more identical pieces of equipment are in any 

category, then enter the total number of hours for all of 

the pieces of equipment in that category here (e.g., if two 

identical loaders are each operating for 7 hours during each 

shift, then enter “14” for the loaders in Hours/shift).

Wages

The Wages worksheet contains the inputs and calculations 

for the wages costings for the hourly wageworkers. It does 

not contain information or calculations for the salaried 

employees. Their earnings are calculated on the Admin. 

worksheet. The inputs on the Wages worksheet are divided 

into four input tables:

	Employees Required & Hired

	Standard Work Hours and Available Overtime Hours per 

Worker

	Base Hourly Wage Rates plus Allowances by Worker 

Type 

	Individual Worker Accessories Costs

Employees required & hired contains the basic inputs on 

the workers required and actually hired by year. The inputs 

follow.

Worker type is the different worker classifications required 

for the yard (e.g. scalers, graders, equipment operators).

Employees required (no./shift) is the number of employees 

in each worker type classification that are required for each 

operating shift.

In this entry, only whole numbers are allowed, which means 

no fractional employees. The number of worker hours 

required will depend on the number of employees required, 

the number of hours/shift, and the number of shifts/year.

General Technical Report FPL–GTR–184
23

Employees hired (no.) is the actual number of employees 

hired in each worker type by year.

If the number of employees hired in any worker type for any 

year is less than is actually required, a warning will appear. 

If a warning does appear, then you should scroll down to the 

individual worker categories to determine in what year or 

years more workers are required. The only way to eliminate 

these warnings is to hire more workers in the appropriate 

years, or to increase the maximum work days/year or the 

maximum work hours/day.

IMPORTANT! Hiring additional employees may reduce 

the total wages bill. Depending on how much extra 

employees are paid for working overtime and the fixed 

costs/employee, it may be possible to reduce the total wages 

bill by hiring additional workers in some years. These 

numbers are worth experimenting with.

Standard work hours per worker calculates the number of 

hours that workers will earn their adjusted hourly wage 

rates. The required inputs follow.

Days/year

Usually this number will be 365.

Less: Holidays

These are statutory holidays. Currently the 10 Federal 

holidays are as follows: 

	New Years Day

	Birthday of Martin Luther King, Jr.

	Washington’s Birthday

	Memorial Day

	Independence Day

	Labor Day

	Columbus Day

	Veterans Day

	Thanksgiving Day

	Christmas Day

Less: weekend days

Although workers may be required to work on weekend 

days, or more than five days/week, these are days for which 

an employee working will be paid an overtime allowance.

Less: vacation days (optional) are the workers’ annual 

vacation days.

Less: allowed sick days (optional) are the expected days 

that workers will not be on the job because of illness.

Available overtime hours per worker calculates the number 

of hours that workers could earn their adjusted hourly 

wage rates plus an overtime allowance. The required inputs 

follow.

Maximum work days/year is the number of days that a 

worker could potentially work.

Maximum work hours/day is the maximum time that a 

worker could possibly work.

The Base Hourly Wage Rates plus Allowances by Worker 

Type input table calculates ordinary base rates, overtime, 

and annual fixed costs. The required inputs followed.

Unadjusted hourly wage rates is the base hourly rates that 

employees will see in their paychecks.

Statutory holiday pay is a percentage applied to the 

unadjusted hourly wage rates to account for paid holidays.

Vacation pay is a percentage applied to the unadjusted 

hourly wage rates to account for paid vacation days.

Sick leave is a percentage applied to the unadjusted hourly 

wage rates to account for paid sick leave.

Retirement is a percentage applied to the unadjusted hourly 

wage rates to account for payments to worker retirement 

funds.

Other allowances is a percentage applied to the unadjusted 

hourly wage rates to account for any other worker 

allowances.

Hourly overtime factor is a percentage applied to the 

adjusted hourly wage rates for overtime hours worked.

Annual fixed costs/employee calculates the fixed costs 

associated with hiring each employee. The fixed costs are 

in terms of dollars. They are as follows:

	Health insurance is the charges for worker health 

insurance paid by the firm.

	Liability insurance is the liability insurance carried by 

the firm.

	Labor accessories (from below) is the worker 

accessories paid for by the firm.

This amount is imported from the Individual worker 

accessories costs input table below.

Other fixed costs is any additional fixed costs/employee.

H2 Crew Accessories

Crew accessories contain general accessories for the 

crew, including the fire and safety equipment. Although 

they would be itemized and depreciated as chattels for 

accounting purposes, they are likely to be only a small 

proportion of the total costs. 

Fire is all fire tools, pumps, extinguishers, etc.

Safety is gang safety equipment.

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Loose tools is a single number quantifying the value of 

miscellaneous loose tools.

Tool and equipment operating life is an estimate for the 

tool and equipment life to calculate an annual allowance.

Administration

The Admin. worksheet contains costs that account for the 

salaried employees, clerical expense, etc. Inputs required 

follow.

Salaried employees required is the number of salaried 

employees each year by employee classification.

Fixed costs per salaried employee (Year 0) is fixed costs 

include ordinary salary, a perks percentage (e.g., company 

vehicle), health insurance, liability insurance, and other 

costs for each salaried employee classification. All costs are 

in Year 0 dollars.

Yearly clerical expense calculations is the yearly 

clerical expense calculations require the input of clerical 

hours (hours/year), the clerical cost ($/hour), the wages 

preparation cost ($/year/employee), and other clerical costs 

($/year).

Other professional fees include accounting, legal, and 

other professional fees.

Communications expenses are any communications 

expenses including telephone, fax, cell phones, and Internet 

service.

Other overheads expenses ($/year) includes utilities, other 

insurance, bank overdraft charges, etc.

Other Costs

Other costs is a catch-all for costs that have not been entered 

elsewhere. These costs are all entered individually.

Working Capital

The Working capital worksheet contains the calculations for 

the short-term funding that the firm requires to operate. In 

an accounting sense, working capital is defined as current 

assets minus current liabilities. Current assets represent 

short-term funds that are needed (cash on hand, accounts 

receivable, and inventory are usually the three largest 

components). Every firm needs to finance its current assets. 

If it does not, a liquidity crunch could mean lost investment 

opportunities. At the extreme, it could mean that the firm is 

put into bankruptcy or receivership.

The most common method of funding current assets is with 

current liabilities. Accounts payable and bank overdraft are 

the two most common forms.

Working capital is paid back at the end of the 10-year 

planning period.

The inputs required to calculate working capital follow.

Required cash on hand (percent of sales) is the cash 

necessary for day-to-day operations.

Average pre-sort holding period is the number of days that 

the unsorted logs are in inventory before being sorted. The 

pre-sort inventory valuation is based on the delivered cost of 

the input logs.

Average post-sort holding period is the number of days 

that the sorted logs are in inventory before being sold.

The post-sort inventory valuation is based on the delivered 

cost of the input logs, the cost of sorting, and the expected 

volume loss during the sort process.

Average days to collect accounts receivable is the number 

of days that need to be financed. The sooner that accounts 

can be collected, the better it is for cash flows and also for 

the probability of collection. It may be possible to shorten 

collections by offering a lower price for prompt payment.

Average days to pay accounts payable is the number 

of days available from creditor financing. The longer that 

account payment can be delayed, the better it is for cash 

flows, provided that there are no early payment discounts. 

Note, however, that if accounts payable are regularly paid 

late, the firm may develop a bad credit rating.

General Technical Report FPL–GTR–184
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LSY: Documentation for a Spreadsheet Tool to Evaluate Log-Sort Yard Economics

Appendix 2—Log-Sort Yard Selected 

Worksheet Printouts for a Sample 

Run

Version: B9. FPL draft version

June 12, 2008

By Ted Bilek, Economist

U.S. Forest Service Forest Products Laboratory

One Gifford Pinchot Drive

Madison, Wisconsin 53726-2398

Tel.: (608) 231-9507

email: tbilek@fs.fed.us

General Warnings

•	 The input data provided are for illustrative purposes only. 

They should not be taken to represent the activities of any 

log-sort yard.

•	 The input data provided will need to be modified to 

represent the activities of any sort yard.

Disclaimers

•	 This model is released on an “as is” basis. Although 

the author has extensively tested the model, it is not 

guaranteed to be free of errors under all calculation 

scenarios.

•	 The results of the model will only be as good as the input 

data. If the input data are poor, the results cannot be 

expected to be reliable.

•	 All financial planning models involve forecasts of the 

future. The results of the model will only be as valid as 

those forecasts. 

•	 Conditions may change to make the forecasts invalid 

(e.g., labor becomes unavailable so that wages have to 

increase rapidly, a fire shuts down operations or makes 

log supplies unavailable, market conditions change 

so that product prices increase or decrease, or interest 

rates change). Although the model enables a sensitivity 

analysis to be run to see which of the forecast variables 

are the most critical to the model’s results, if the forecasts 

are invalid, the model’s results will also be invalid. If the 

underlying assumptions change, the model should then be 

re-run.

•	 Neither Ted Bilek nor the U.S. Forest Service will accept 

any liability for losses resulting from reliance on the 

model’s results. However, the author hopes that use of the 

model will provide improved information for decisionmaking in the set-up and operation of log-sort yards. 

•	 Depreciation rates may be changed according to standard 

depreciation schedules, or custom rates may be used.

•	 The model allows users to store data on equipment costs 

and productivities so that comparisons may easily be done 

on different equipment and sorting-system configurations.

•	 Terminal values may be based on either current or book 

values.

•	 The model includes sensitivity analysis options to scale 

costs and revenues up or down.

Please report any errors or suggestions for improvements 

directly to the author.

Introduction

LSY is a spreadsheet-based model that can aid in the prefeasibility and financial feasibility analysis of a log-sort 

yard. The model is meant to be used with the following 

documentation:

Bilek, E.M. (Ted). 2009. LSY: A spreadsheet tool to 

evaluate log-sort yard economics. U.S. Department of 

Agriculture, Forest Service. Forest Products Laboratory. 

General Technical Report FPL-GTR-184. Available online: 

http://www.fpl.fs.fed.us/documnts/fplgtr/fpl_gtr184.pdf

What The Model Does

•	 Standard financial measures, net present value (NPV) and 

internal rate of return (IRR) are calculated before tax and 

finance, before tax, and after tax.

•	 Yearly summaries may be used for marketing and 

budgeting purposes. Yearly summaries include

cash flows; productivity measures; physical log input 

requirements; and physical outputs by product type.

•	 The break-even log cost shows how much the yard could 

afford to pay for logs and still make its specified after-tax 

rate of return.

The Model Is Flexible

•	 Users can easily and quickly change variables and 

determine the effect on financial feasibility.

•	 The model allows users to specify up to 20 log input 

grades and 19 product outputs.

•	 The percentage composition of logs coming in may be 

varied over time.

•	 The model is set up so that users may limit production by 

number of pieces or thousand board feet.

•	 The model allows changing hours of operation over time.

•	 The model allows users to specify a learning curve, if 

desired, to represent increased efficiencies over time as 

workers become more familiar with the operation.

•	 Land and buildings may be leased or owned.

•	 Pieces of equipment may have different economic lives 

than depreciable lives.

•	 Depreciation rates may be changed according to standard 

depreciation schedules, or custom rates may be used.

•	 The model allows users to store data on equipment costs 

and productivities so that comparisons may easily be done 

on different equipment and sorting system configurations.

•	 Terminal values may be based on either current or book 

values.
General Technical Report FPL–GTR–184

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•	 It includes sensitivity analysis options to scale costs and 

revenues up or down.

The Model Is Powerful

•	 Break-even log costs are approximated through direct 

calculations so that the difference between the actual log 

cost and the break-even cost may easily be seen.

•	 Exact break-even costs may be determined easily using 

Excel’s built-in “Goal Seek” function.

•	 The model allows users to see which log input types and 

products are the most profitable and which, if any, are 

losing money.

•	 Wages calculations show years in which more hourly 

employees are required and what worker classifications 

are needed.

•	 Numbers of employees may be changed to minimize 

wages expenses.

•	 Sensitivity analysis may be run on any of the cost 

categories or prices by simply changing percentages on 

the Summary worksheet.

•	 Equipment is assumed to wear out at the end of its 

economic life, which may be different than its 

depreciable life.

•	 Worn out equipment is automatically replaced at an 

inflation-adjusted cost.

•	 Inflation is incorporated into the model. If an inflation 

rate is specified, all revenues and all costs, apart from 

depreciation, will increase at the specified rate.

•	 Financing may be incorporated into the model.

The Model is Organized for Ease of Use

•	 All assumptions that may be changed are entered in blue.

•	 The most important information is consolidated on the 

Summary worksheet.

•	 A full sensitivity analysis may be run without leaving the 

Summary worksheet.

•	 Inputs that are used in more than one worksheet are only 

entered once, in the general assumptions worksheet.

•	 Inputs that are specific to just one worksheet are entered 

on that worksheet.

•	 The most important information is at the front of the 

workbook and at the top of each worksheet. Assumptions 

always come next.

•	 Costs are consolidated in one worksheet. Further 

information is provided in the individual costing 

worksheets.

•	 Cells containing costs and revenues that are used in the 

Summary worksheets are highlighted in yellow.

•	 Equipment costs and productivities may be copied from 

the equipment library and pasted into the equipment 

worksheet.

•	 Extensive error and warning messages designed to aid in 

the interpretation of the results may appear, depending on 

the input assumptions.

Limitations

•	 This is a very big spreadsheet/workbook with over 

150 pages in hard copy. Its size may appear to be 

overwhelming.

•	 LSY is not for those without a background in business 

finance and logging operations. Whereas the program 

contains the structure to analyze pre-feasibility and 

feasibility for a log-sort yard, assembling the necessary 

data will take a team involving the skills of a logging 

engineer, log yard operations manager, procurement 

forester, marketing specialist, and financial analyst/

accountant.

•	 LSY does not provide pro-forma income statements and 

balance sheets, but it could provide the basis to do so.

•	 LSY does an analysis based on a “for profit” business. 

This is the recommended approach for all log-sort yards.

•	 See the following background paper for further 

information: Dramm, John Rusty, Robert Govett, Ted 

Bilek, Gerry L. Jackson. 2004. Log-sort yard economics, 

planning, and feasibility. U.S. Department of Agriculture, 

Forest Service. Forest Products Laboratory. General 

Technical Report FPL-GTR-146. 31 p. Available online: 

http://www.fpl.fs.fed.us/documnts/fplgtr/fpl_gtr146.pdf.

Workbook Contents

Summary is a summary of all the financial and physical 

measures.

The Summary worksheet also contains the inputs for a 

sensitivity analysis and log cost break-even calculation.

Pie Chart shows all the discounted cost categories, in 

addition to profit (loss) as a percentage of discounted sales 

revenue.

Cash Flow Chart is a line graph showing annual cash flows 

before finance and tax, before tax, and after tax.

General Assumptions is a worksheet containing all 

assumptions that are inputs to more than one subsequent 

worksheet.

Gross Margin: gross margin = product sales – log costs. 

The gross margin is what is left over to cover the yard’s 

operating costs.

Consolidated Operating Costs worksheet contains the 

costs consolidated from the subsequent worksheets.

Land&Bldg. is the area required for operation. It 

may be leased or purchased. The cost includes repairs 

and maintenance. Depreciation on depreciable land 

improvements and buildings is allowed if the assets are 

purchased.
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27

Chattels contains the depreciable office equipment. It also 

contains weigh scales and sorting bunks.

Capital Equipment is the equipment used for sorting.

Wages are the workers who work for hourly wages. This 

worksheet does not include administration and overhead 

wages. They are entered on the Admin. And Other costs 

worksheets.

Worker Accessories is primarily site safety equipment.

Admin. is administration costs and overheads.

Other Costs contains miscellaneous other costs.

Working Capital is a function of required cash on hand, 

accounts payable, accounts receivable, log input inventory, 

and sorted product inventory. Working capital is repaid at 

the end of the project.

Capital Equipment Library: worksheet allows equipment 

specifications to be saved by equipment type and also by 

equipment configurations. Data from this worksheet may 

be pasted into the capital equipment worksheet to quickly 

change equipment configuration scenarios.
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