How to Determine the Cost of Capital for Commercial Forestry

Beljan, Karlo; Dolinar, Denis; Hodges, Donald G.

doi:10.13073/fpj-d-21-00060

Cited by 2 publications

(3 citation statements)

References 34 publications

(31 reference statements)

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“…The most important are risk diversification [25][26][27] and inflation hedging [6,28]. However, every portfolio is different, which means that adding a forest asset will not have the same effect on improving the risk-return ratio of a portfolio [49]. The Modern Portfolio Theory [50] and current investment practice place great emphasis on minimizing the motioned risk-return ratio, that is, maximizing the portfolio risk-adjusted return.…”

Section: Discussionmentioning

confidence: 99%

“…The findings of this study are suitable for all investors who are considering buying shares in forestry companies in order to meet and implement the sustainable investing concept. However, each portfolio manager should adhere to Modern Portfolio Theory principles when evaluating the risk and return of adding forestry investment into existing investment portfolios [49].…”

Section: Discussionmentioning

confidence: 99%

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The Long-Term Capital-Market Performance of the Forestry Sector: An Investors’ Perspective

Beljan

Brener

Dolinar

2022

Forests

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High risk-adjusted returns, low correlation with financial asset classes and inflation hedging are investment characteristics that make forests a desirable investment opportunity. To examine returns on forestry investments (from 2011 to 2020), we focused solely on 48 forest companies (across the globe) that were listed on stock exchanges. Results indicate the economic justification of investing in publicly traded forestry companies. The positive five-year beta coefficients (β) range from 0.21 to 3.46, amounting to 1.15 on average. Taking the last 10-year comparison of the world’s most common capital market benchmarks, the highest return was achieved by the S&P500 (13.8% on average) followed by forestry companies (9.1%), U.S. Treasury bonds (4.4%), and gold (3.0%). Forestry companies, along with their associated business activities (sawmilling, final products production, and paper production), show the best historical performance from an investor’s point of view (total return of 13.2%).

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Section: Discussionmentioning

confidence: 99%

Section: Discussionmentioning

confidence: 99%

The Long-Term Capital-Market Performance of the Forestry Sector: An Investors’ Perspective

Beljan

Brener

Dolinar

2022

Forests

Self Cite

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“…Corporate income tax in Croatian equals 18% and has been is used in this research accordingly. The cost of capital is set at minimum of 5.41% representing the investor with a well-diversified portfolio (Beljan et al 2022b). Regarding the terminal value of the project at the end of the investment horizon conservative approach was taken.…”

Section: Economics Valuationmentioning

confidence: 99%

Investment Analysis of a Joint Forest and Game Management – A Case Study from Croatian Dinarides

Beljan

Pokupić²,

Mataković

et al. 2022

SEEFOR

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Wildlife-based tourism, including hunting, is attracting interest from governments, the tourism industry, and researchers. Capital investment in renewable resources, like forests, represents spatial and temporal management, which is significantly limited by the natural potential of a particular habitat (e.g., volume increment, the quantity of food for wildlife, etc.). Therefore, the return rate expected by the investor is quite fixed and the only tool by which the investor can increase it is by adding further business activities and/or expanding the existing value chain. In the Republic of Croatia, the only forests which can be purchased by individual or institutional investors, and in which it is possible to establish both active forest management and commercial hunting, are private forests. Based on these insights, we analysed characteristics of capital invested in a large-scale private forest, where game management is carried out in addition to extensive forest management. Of the 1,104 hunting grounds in Croatia, the one with the largest percentage of forest cover (92%) and privately owned (61%) was taken as the subject of this case study (name of the hunting ground: VIII/120 “Permani” (10,017 ha)). A theoretical approach was used in which the investor buys all private forests (predominantly consisting of common beech), conducts forest management activities, and makes a profit by selling timber (30-year period). Furthermore, the hunting segment consisting of game management for red deer, roe deer, wild boar and brown bear is evaluated. At the lowest cost of capital (5.41%), the results of the separate forest management revealed an Internal Rate of Return (IRR) of 5.10%, a negative Net Present Value (NPV) (-760,000 €) and a 30-year discount payback period. Joint forest and game management resulted in an IRR of 5.69%, a positive NPV (680,000 €), and the same length of a discount payback period.

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How to Determine the Cost of Capital for Commercial Forestry

Cited by 2 publications

References 34 publications

The Long-Term Capital-Market Performance of the Forestry Sector: An Investors’ Perspective

The Long-Term Capital-Market Performance of the Forestry Sector: An Investors’ Perspective

Investment Analysis of a Joint Forest and Game Management – A Case Study from Croatian Dinarides

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