© 2004 by Institute of Chartered Foresters
Calculating costs and charges for forest machinery use
A1 School of Agricultural and Forest Sciences, University of Wales, Bangor, Gwynedd LL57 2UW, Wales
The calculation of charges for the use of forest machinery is seldom clearly understood. This paper seeks to address this problem by setting out the main techniques by which machinery can be costed and charged for, and then appraising the accuracy and suitability of each. Three approaches are reviewed: the discounted cash flow, the shorthand–complex and the shorthand–simple approaches. Consideration is given to different cash flow timings and the various elements of costs. The procedures and equations arrived at are illustrated by means of an example. The results show that, although the discounted cash flow approach gives the most accurate results, the other two approaches can give a high degree of accuracy. Calculations made on the basis of mid-year or monthly cash flows or continuous discounting give very similar results, while those made on the basis of year-end cash flows diverge somewhat. Only when the analysis is carried out using nominal, as opposed to real, interest rates is the degree of accuracy for all three methods likely to become unacceptable.