Scientific paper

Adjusting Faustmann's Formula for a Dynamic Financial Environment

Published in: South African Forestry Journal
Volume 148 , issue 1 , 1989 , pages: 18–22

DOI: 10.1080/00382167.1989.9628978

Author(s): H. , J.E. Uys Department of Forest Science,

Keywords: Forest finance , inflation , compound interest , real price changes

Abstract

The well-known LEV criterion or Faustmann's formula which evolved in the static financial environment of the nineteenth century is adjusted to take account of the changes in the dynamic financial environment of today. A previous incorrect attempt to adjust LEV to take account of price changes is discussed. Net present value for an infinite series of rotations (NPV ∞) is reformulated to take account of price changes and a new form of internal rate of return (i.e. IRR∞) is presented.

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