The current stumpage price, inflation rate, and past price trends are all considered in making this estimation . In addition to determining the future selling price of the products you intend to produce, you must also determine your forest's growth and yield. When you get a dollar today, you can spend it immediately if you wish. This brings us to the concept of interest rates . The cost of keeping money in a project, in our case a forestry project, is indicated by the interest or discount rate.
Time costs money as do other inputs and the price of time is usually measured by the interest rate.
In general, projects with a longer life require higher discount rates. Investors know that money can be made by lending money. People are willing to pay for the use of money. When an investment grows at a specified interest rate, we call it compounding . Discounting begins with a future amount and determines its worth today.