Optimal financial rotation in the Inhamacari forest plantation
1999
Falcao, M.P.
In a recent study the optimal financial rotation for sawtimber production from Pinus patula in the Inhamacari forest plantation was established. Equivalent Annual Income was used as financial profitability criterion. All cost components were 1999 costs derived from IFLOMA. The study used 1999 prices of pulpwood and sawlogs by IFLOMA. The prime overdraft rate from 1978 to 1997, used by a major South African Bank, was used to estimate the Nominal Cost of Capital as 17%. By making use of trend analysis, the long-term inflation rate was estimated as 13%. Based on these two estimated values, a Real Cost of Capital of 3,5% was calculated and used in the study. One other scenario was also used (a low Real Cost of Capital of 2,0%) to determine the optimal financial rotation. The results showed that optimal financial rotations of 21 years and 23 years are required for profitable sawtimber production from Pinus patula in the Inhamacari forest plantation at a Real Cost of Capital of 3,5% and 2,0% respectively
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