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Economagic Glossary |
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- The interest rate that could be achieved by investing money elsewhere (such as a bank account, mutual fund, etc.). This can be the basis for selecting an interest rate to use when analyzing forestry investments, as it represents the opportunity cost of investing money in growing trees instead of using it to earn interest elsewhere. (Lesson 4)
- These are costs that are incurred every year as part of owning and operating a forestry enterprise. These costs may include property taxes, regular maintenance, services (accountant, utilities, etc.), equipment costs, etc. (Lesson 4)
- A payment series that occurs every year. (Lesson 2)
- See Soil Expectation Value
- The year used as the common reference point when keeping values in constant dollars. Values in different years are all expressed in terms of the purchasing power of the common base year in order to remove the effect of inflation. (Lesson 3)
- Any revenue or expense. (Lesson 4)
- A thinning in which the trees removed are large enough to have commercial value and generate a net revenue. (Lesson 4)
- Compound interest is the effect of interest accruing on interest—interest not only accrues on the original amount (principal), but also on any interest that has already accrued. In this way the amount of interest increases each year. (Lesson 1)
- The growth of money over time due to compound interest. (Lesson 1)
- An index that measures inflation by tracking the combined price of a “basket” of goods and services consumed by a typical consumer. (Lesson 3)
- Expressing values that occur at different times in terms of the purchasing power of a common base year to remove the effects of inflation. (Lesson 3)
- The interest rate you would pay a lender when borrowing money to cover the expenses of a forestry investment (e.g. purchasing land or planting trees). This can be the basis for selecting an interest rate to use when analyzing the forestry investments, as it will incorporate the cost of the interest you will have to pay back over time on the borrowed funds into the analysis of the investment performance. (Lesson 4)
- The Interest Rate. It is sometimes referred to as the discount rate, as the interest rate is used to discount values that occur in the future. (Lesson 1)
- A cash flow that has been discounted from the time it occurs to the present. (Lesson 4)
- Reducing the value of money in the future relative to today due to compound interest (i.e. doing compounding in reverse). (Lesson 1)
- The cost of establishing a stand of timber, such as planting and site preparation. (Lesson 5)
- A measure of the total economic value of a forest, including both land and timber, given expectations about future cash flows. It incorporates the NPV of all costs and revenues in perpetuity when starting with existing timber. (Lesson 6)
- What money today will be worth in the future due to compounding. (Lesson 1)
- The general increase in wages and prices over time and subsequent reduction in the purchasing power of money. (Lesson 3)
- The formula for determining the annual payment needed to pay off a present debt. (Lesson 2)
- The “cost of money”—the amount of additional money that must be paid/received in the future in order to use/give up money today. (Lesson 1)
- The interest rate quantifies the time value of money by specifying the percentage rate at which interest accrues. Also referred to as the discount rate or rate of return. (Lesson 1)
- The interest rate at which net present value becomes zero. IRR is another way to measure the economic performance of an investment. (Lesson 4)
IRR
- See Internal Rate of Return
- See Soil Expectation Value (SEV)
- The actual price that something (e.g. forestland) will sell for, based on an aggregate of buyers and sellers in the marketplace (as opposed to the economic value for an individual, such as SEV, Forest Value, etc.). (Lesson 5)
- Any revenue or expense that occurs in the middle of rotation (between stand establishment and final harvest), including PCT, CT, vegetation control, etc. (Lesson 6)
- The total present value of cash flows (revenues and expenses) over time (i.e. the sum of discounted cash flows). (Lesson 4)
- An interest rate that has not been adjusted for inflation (such as what you would be quoted at the bank). (Lesson 3)
- The actual price of something in the year it occurs. (Lesson 3)
- The actual change in the price of something over time, including the effect of inflation (Lesson 3)
- Goods and services that are not readily bought and sold in the marketplace. Non-market values in forestry may include aesthetics, wildlife habitat, recreation, clean air and water, etc. (Lesson 5)
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NPV
- See Net Present Value
- When investing money in something, there is a lost opportunity to invest in something else that becomes the cost of that choice. For example, when investing in forestry, there may be a lost opportunity to earn interest on that money in the bank. (Lesson 4)
- A cash flow that occurs at regular intervals over time, such as payments on a loan or regular income or expenses. (Lesson 2)
PCT
- See Precommercial Thin.
- A payment series that occurs at some intervals other than every year. (Lesson 2)
- A payment series that continues forever. (Lesson 2)
- A payment series that occurs every year forever. (Lesson 2)
- A payment series that occurs at some interval other than every year and continues forever. (Lesson 2)
- Continuing forever. (Lesson 5)
- A thinning. usually early in the life of a stand, in which smaller, poorer-quality trees are removed to improve the growth of the remaining trees. The trees that are removed have little or no commercial value and are usually left on the ground. (Lesson 4)
- What money in the future will be worth today due to discounting. (Lesson 1)
- The amount of money actually borrowed or invested, not including interest. (Lesson 1)
- The amount of goods and services that an amount of money can buy. Purchasing power is diminished over time because of inflation. (Lesson 3)
- The interest rate. Sometimes referred to as the rate of return as it is reflects the extent to which an investment will be returned with interest. (Lesson 1)
- An interest rate that is adjusted for (net of) inflation. (Lesson 3)
- A price that has been adjusted for inflation (Lesson 3)
- A change in price that is net of inflation. A real price change reflects an actual change in value relative to wages and other goods as opposed to a change in value because of a general inflation of prices. (Lesson 3)
- The commercial life cycle of a forest stand, from stand establishment to final harvest. (Lesson 4)
SEV
- See Soil Expectation Value
- The formula for determining the annual investment needed to accumulate a future amount. (Lesson 2)
- The preparation of land for planting trees, which may include herbicide or broadcast burning to control competing vegetation, scarification of the soil, etc. (Lesson 4)
- The economic value of bare land for forestry use given expectations about future cash flows. It incorporates the NPV of all management costs and revenues in perpetuity when starting with bare land. It can be used as an economic performance benchmark for making direct comparisons between different management options and land uses. (Lesson 5)
- A payment series that occurs every year for a finite period of time (Lesson 2)
- A payment series that occurs at some interval other than every year and lasts for a finite period of time. (Lesson 2)
- A payment series that occurs for a finite period of time (i.e. it terminates at some point) (Lesson 2)
- Constant dollars, using today as the base year (i.e. expressing prices over time in terms of today’s purchasing power to remove the effects of inflation) (Lesson 3)