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New Zealand Journal of Forestry (1968) 13(2): 168–183
©New Zealand Institute of Forestry

Research article
Problems Affecting the Use of Faustmann's Formula as a Valuation Tool

M.B. Grainger

To test its reliability as a valuation tool for forest land, the Faustmann formula is compared systematically with a more orthodox form of financial analysis which accounts for total forest income and expenditure. The criterion is the Maraetai land-use study which gave a land expectation value of $96 per acre for an interest rate of 4%. When Faustmann's formula is applied to the same range of basic data in accordance with traditional procedure, the indicated land expectation value is inflated to $180 per acre. The causes of the disparity are identified, and the action necessary to preserve accuracy is explained.
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