What is the Faustmann formula?

The Faustmann formula calculates the land expectation value: the present value of an infinite series of identical timber rotations on bare land. It discounts the net revenue of one rotation and then accounts for repeating it forever, which is the correct way to value timberland because the land keeps producing crops after each harvest.

Why is land expectation value higher than single-rotation NPV?

Single-rotation NPV values just one crop and ignores that the land grows another stand afterward. Land expectation value captures the perpetual series by dividing the single-rotation present value by one minus the discount factor over the rotation, which raises the figure because future rotations have value today.

How does the discount rate change the optimal rotation?

A higher discount rate makes distant harvest revenue worth less today, pushing the economically optimal rotation to a shorter age — you cut sooner to capture cash and reinvest. A lower discount rate lets stands grow longer because waiting costs less. The tool scans ages to show this shift.

What costs should I include?

Include establishment cost at planting (site prep, seedlings, planting) as a cost at year zero, and annual management cost (taxes, administration, protection) as a recurring outflow over the rotation. Stumpage revenue is the value of standing timber sold at harvest, net of logging if you quote delivered prices.

Is this a substitute for a full forest valuation?

No. This is a single-stand screening model with constant per-rotation revenue and cost. A full valuation models growth and yield curves, thinning revenues, price trends, risk of fire and pests, and tax. Use this to compare rotation ages quickly, then commission a detailed appraisal.

Tree Farm Rotation & NPV Calculator

The hardest economic question in forestry is when to cut. This calculator applies Faustmann land-expectation-value logic to discount stumpage revenue against establishment and management cost, giving both single-rotation NPV and the perpetual-series value, and it scans rotation ages to find the optimum.

How it works

For a rotation of length T years, discount rate i, harvest stumpage R, establishment cost C0 at planting, and annual management cost a:

PV of one rotation (at year 0) =
   R / (1 + i)^T  -  C0  -  a x [ 1 - (1 + i)^-T ] / i

Land Expectation Value (perpetual series) =
   PV_one_rotation / ( 1 - (1 + i)^-T )

The single-rotation present value discounts the harvest back to planting, subtracts the up-front establishment cost, and subtracts the present value of the annual management cost (an annuity over the rotation). The Faustmann land expectation value then scales that to an infinite series of identical rotations, which is the correct valuation for productive forest land.

Optimal age

The economically optimal rotation maximizes land expectation value, not timber volume. Because the model uses constant per-rotation revenue, the tool lets you make R grow with age via a simple growth input and scans ages to report the one with the highest LEV at your discount rate. Raising the discount rate shortens the optimum; lowering it lengthens it.

Notes

This is a screening tool with constant or simply-growing revenue. A bankable appraisal models full growth-and-yield curves, thinnings, price trends, and risk.