A kaatoan bangkal plantation will be established to support a pulp and paper mill in Mindanao. At its rotation age of 5 years, the estimated yield is 125m3/ha. The cost of establishment is PhP 20,000/ha. The maintenance and protection cost from the first year until the 5th year is PhP 2,000/ha/year. The stumpage price of kaatoan bangkal is PhP 700/ m3. Using a discount rate of 15% per annum, evaluate the feasibility of the project. make a cash flow using cba from year 0-5 with npv, sev, bcr, irr, df

Answer

A kaatoan bangkal plantation can be established to support a pulp and paper mill in Mindanao. The cost of establishment is PhP 20,000/ha, with a maintenance and protection cost of PhP 2,000/ha/year from the first year until the 5th year. The estimated yield at a 5 year rotation age is 125m3/ha and the stumpage price of kaatoan bangkal is PhP 700/m3. Evaluating the feasibility of the project requires a cash flow analysis using cost-benefit analysis (CBA) with a discount rate of 15% per annum.

Cash Flow Analysis

A cash flow analysis with CBA will show the net present value (NPV), the social equivalent value (SEV), the benefit-cost ratio (BCR), the internal rate of return (IRR), and the discount factor (DF) of the kaatoan bangkal plantation project.

Net Present Value (NPV)

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. The NPV of the kaatoan bangkal plantation project is the total present value of cash inflows generated from the sale of the kaatoan bangkal minus the total present value of cash outflows associated with the establishment and maintenance of the plantation.

Social Equivalent Value (SEV)

Social equivalent value (SEV) is the net present value which considers the social cost and benefit of the project. The SEV of the kaatoan bangkal plantation project takes into account the external costs and benefits associated with the project.

Benefit-Cost Ratio (BCR)

Benefit-cost ratio (BCR) is the ratio between the present value of benefits and the present value of costs associated with the project. The BCR of the kaatoan bangkal plantation project is the ratio between the total present value of benefits generated from the sale of the kaatoan bangkal and the total present value of costs associated with the establishment and maintenance of the plantation.

Internal Rate of Return (IRR)

Internal rate of return (IRR) is the rate at which the NPV of the project is equal to zero. The IRR of the kaatoan bangkal plantation project is the discount rate at which the total present value of cash inflows generated from the sale of the kaatoan bangkal is equal to the total present value of cash outflows associated with the establishment and maintenance of the plantation.

Discount Factor (DF)

Discount factor (DF) is the ratio between the present value and future value of a given amount of money. The DF of the kaatoan bangkal plantation project is the ratio between the total present value of benefits generated from the sale of the kaatoan bangkal and the total future value of benefits generated from the sale of the kaatoan bangkal.