Syllabus (revised 3/17/2013)
FNR 407
Spring 2013, January 7 to May 4
Monday and Wednesday 9:30 AM, FORS 216
Friday, 9:30  11:20 AM, SC 246
Instructor: William L. (Bill)
108 FORS
billh@purdue.edu
(765) 4943580 (office)
Teaching Assistant: Tamara
Benjamin, PhD
1422 LILY
tamara17@purdue.edu
(765) 4961930 (office)
Office Hours: There
is nothing more important to us than your success in this course. Thus, if I'm
in my office when you stop by and I'm not with someone else, I'll be glad to
help you. But be aware that I am responsible for educational programs off
campus that take me away from my office. Thus, it's best to check on my
availability for a specific day and time by email or phone. I keep my calendar
uptodate and my assistant Diana Evans in FORS 107, 4943583, can check it for
you.
Campus Emergency: In the event of a
major campus emergency, course requirements, deadlines and grading percentages
are subject to changes that may be necessitated by a revised semester calendar
or other circumstances. I will inform you by email as soon as adjustments
become necessary. You can also contact me as per above.
Personal Emergency: There are more important
events in our lifes than a few classes. If you need
to be gone for more than one period in a row please contact me to arrange
makeup procedures for learning the material missed.
Learning
Objectives: Students completing this
course will be able to apply the basic techniques of economic and financial
analysis to real world problems they may encounter in their careers and
personal life. A survey is provided of the unique economic characteristics of
forests and timber production and how these affect decisions about their use
and management. The focus is on application of problem solving techniques and
technical writing.
Prerequisite: FNR/AGEC
406 Natural Resource and Environmental Economics , or
permission of the instructor
Instructional Material:
1. Notes by William L. Hoover and Gerald Shively
http://www.agecon.purdue.edu/staff/shively/courses/AGEC406/index.htm
a. Outline of Microeconomics
b. Overview of BC Analysis
c. Basic Concepts in Economic Theory
This review
material will provide you with another presentation of the basic concepts
applied in class.
2. Powerpoint presentations are linked in syllabus below for
the day they are used in class.
3.
Textbook:
4. Mastery Concepts 
These are the core concepts that must be mastered to pass the course. At least
one will apply to every aspect of the course. They will be included in quizes in some form until everyone in the class understands
them. They are presented in a handout.
SelfReview of Basic Concepts:
In addition to the basic algebra you already know we will
use summation notation and differential calculus. The first lab exercise will
deal with applying summation notation in EXCEL Spreadsheets. But, please review
summation notation at, http://www.math.ucdavis.edu/~kouba/CalcTwoDIRECTORY/summationdirectory/Summation.html
Pull out your calculus textbook if you need to review differential calculus,
focus on first and second derivatives .
Computer Software:
We will make extensive
use of EXCEL to do financial calculations. If you are not already proficient
with EXCEL please practice. One of the major challenges will be the entry of formulas.
Use HELP menu to learn how to enter complex formulas.
Quizzes:
There will be
approximately 10 unannounced quizzes focusing on the basic concepts you are
expected to master, i.e. thoroughly understand and be able to apply. The
purpose of the quizzes is to motivate you to keep up with the material, but
also to allow me to assess how many of you have mastered the basic concepts.
You will get quiz questions dealing with these basic concepts until essentially
everyone in the class responds correctly.
Examinations and Final:
There will be three
examinations and a comprehensive final during finals week. Exams and finals
given in the last several years are linked in the syllabus below. You should
use these as study guides and if you're not confident that you can answer the
questions seek assistance. Like the quizzes, the exams and final will
test your understanding of basic concepts, not minutia found in the textbook or
other materials used in this course.
Academic Dishonesty:
Purdue
prohibits "dishonesty in connection with any University activity.
Cheating, plagiarism, or knowingly furnishing false information to the
University are examples of dishonesty." [Part 5, Section IIIB2a, University
Regulations]
Furthermore, the University Senate has stipulated that "the commitment of
acts of cheating, lying, and deceit in any of their diverse forms (such as the
use of substitutes for taking examinations, the use of illegal cribs,
plagiarism, and copying during examinations) is dishonest and must not be
tolerated. Moreover, knowingly to aid and abet, directly or indirectly, other
parties in committing dishonest acts is in itself dishonest." [University
Senate Document 7218, December 15, 1972]
SEE:
http://www.purdue.edu/odos/aboutodos/academicintegrity.php
Exercises:
Without question the best way to
understand the basic concepts you will be expected to master is to apply them. This
will be accomplished with exercises completed in the weekly laboratory period.
A list of these with due dates is in the syllabus table below. The primary
purpose of these exercises is to give you a mechanism for understanding the
concepts, not to judge and grade your understanding of them. Thus, you
are encouraged to work on the exercises collaboratively and to seek help from
Prof. Hoover or Benjamin. Getting behind on completing the exercises is deadly to
your success in this course.
Mastery Concepts:
The application of
economic and financial concepts requires you to solve problems in ways that may
be new to you. Some basic concepts underlie the approaches used. I have
summarized these as Mastery Concepts.
Almost everything we'll do in this course builds on these concepts and they
will be the focus of quiz questions.
Technical Paper: Due May
3, Friday, by 5:00 PM
You are required to submit a technical paper demonstrating how
economic tools can be applied to a real world problem. Requirements:
(1) Select an industry or sector of the economy for which you have
an interest.
(2) Confirm that articles from trade journals or other sources are
accessible to you,
(3) Confirm that economic data is available to you ( Google
searches will provide access to the US Dept. of Commerce and other data bases).
(4) During the course use these sources to track the economic
performance of your industry or sector and be prepared to provide summaries in
class when called on.
(5) Complete a technical paper of at least 3,000 words that
includes a description of the industry or sector, its role in the US and Global
economies, factors driving the level of activity in the industry or sector,
graphs showing activity in the industry or sector and the factors determining
activity, your assessment of the current state of the industry or sector, and
your outlook for the industry or sector going forward. Your paper must follow the editorial guidelines for the Northern
J.of Applied Forestry: http://www.safnet.org/publications/northern/guideforauthors.cfm
Evaluation criteria for paper:
There is no specific outline for all papers, but there is required content.
Also, you are required to follow the editorial guidelines for SAF publications.
These are referenced in the assignment. Content must include, (1) Statement of
the issue or problem to be analyzed; (2) Analytical method(s) to be used, (3)
Sources of information and information that would be useful but could not be
found; (4) Informationdata used; (5) Analysis; (6) Results; (7) Conclusions;
(8) Literature cited.
Grading:
Examinations, 3 each 35%
Final examination 15%
Quizzes 15%
Technical Paper 15%
Exercises 20%
Total
100%
SYLLABUS

Date 
Topic 
Assignment 
1 M 
Jan. 7 
(1) Overview of course
requirements, procedures, and grading (2) Introduce mastery
concepts (3) Introduce the concept of managerial economics and basic
decision making steps. 



Objective: Become familiar with problems that can be solved
using economic approaches, and the basic tools of problem solving and
economic analyses. 
Text: Study Chapter 2 




2 W 
Jan. 9 
Unique
Characteristics of Forests and Timber 



Objective: Become
familiar with what's different about forestland and timber production from an
economic standpoint compared to other production processed. Introduce the
concept of supply and demand (market) analysis. 
Text: Study Chapter 2 




3 F 
Jan. 11 
Laboratory  Excel spreadsheet and summation notation 



Objective: Become skilled in
doing calculations with Excel and translating formulas using summation notation
into Excel calculations. 
Lab
Exercise #1
 Use of spreadsheet Due at end of class, not scored 




4 M 
Jan 14 
Analytical Tools  Marginal Analysis (Dr. Benjamin) 



Objective: Learn the basic
elements of marginal analysis. 
Text:
Study p. 2043 




5 W 
Jan. 16 
Analytical Tools  Discounted Cash Flow Analysis 



Objective:Have a working knowledge
of the use of net present value (NPV) and internal rate of return (IRR) to
make investment decisions. 
Text: p. 101113 




6 F 
Jan. 18 
Laboratory  Conduct
simple marginal analysis 



Objective: Learn to conduct simple marginal analyses and interpret the results. 
Lab
Exercise #2
 Killmore
Wild Game Company Killmore WGCo
(Due January 25 ) 




M 
Jan.21 
MLK Day, No
class 









7 W 
Jan 23 
Review of Microeconomics 
Theory of Demand 
Text: p. 2031 NL Exer
1 (Due Jan. 30) 


Objective: Review the meaning of a demand curve, the price
elasticity of demand, and movements along ans
shifts in demand. 

8 F 
Jan. 25 
Laboratory  Conduct complicated
marginal analysis 
Lab exercise #3 
Marginal dbh for logging company to harvest for
lumpsum and payascut contracts. Marginal
DBH to Harvest (Due Feb. 1) 
Objective: Conduct marginal
analysis requiring adjustments for tree and log volume 

9 M 
Jan 28 
Review of Microeconomics 
Theory of Supply (Dr. Benjamin) 
Text:
p. 3146 NL Exer 2 (Due Feb. 4) 


Objective: Review the meaning of a supply curve and how it is
derived. Also, learn how to add individual producers' curves to obtain market
supply curve. 





10W 
Jan. 30 
Review of
microeconomics  Supply and Demand Equilibrium 
Text: p. 4655 NL Exer
3 (Due Feb. 6) 


Objective: Combine demand and supply cureves
to obtain market equilibrium price and quanityu in
the cases of (1) a perfectly competitive market structure and (2) a
monopolistic market structure. 





11 F 
Feb. 1 
Laboratory: Discounted Cash Flow 

 
 
Objective: Use Excel to calculate net present value
(NPV), use Goal Seek tool to find internal rate of return (IRR), and conduct
sensitivity analysis on important variables. 
Text: Chapter 4 Lab
Exercise #4  NPV, IRR, and
Sensitivity Analysis Handout Spreadsheet (Due
Feb. 8 ) 




12 M 
Feb. 4 
Forests as Capital 



Objective: Know the implications of the time value of
money (assets generally), opportunity cost, and learn how to carryout basic
calculations for longterm timber production processes. 
Text:
Chapter 4 NL Exer 4  Chapter 4 problems 41, 43, 47, 49, 411, 413, 415, 417 (Answers are on p. 539 of text. Show your calculations). (Due Feb. 16) Interest Rate Formula Sheet, Examples, Plum Creek 10K 




13 W

Feb. 6 
Examination 1 
Past
Exams 2012, 2011, 2010, 2009, 2008 Warning: Many questions in
previous exams are no longer relevent 




14 F 
Feb. 8 
Laboratory  Financial Maturity of Single Trees 



Objective: Determine when a
tree should be harvested based on financial criteria and compare to
biological maturity. 
Study: Financial Maturity
Concepts Lab Exercise #5  Financial maturity of hardwood trees (Due Feb. 22 ) Handout 




15 M 
Feb. 11 
Return Exam and
discuss in detail. Soil Expectation
Value (SEV) also called Willingness to Pay for Land(WPL) (Dr. Benjamin) 
Text: Chapter
7, Power Point with Example
, WPLSEV Formula Example , DrBenjamin PP 


Apply the
concept of economic rent to determination of the value of land used for
timber production. 
NL Exer. 5, Chapter 7 problems 71, 73,
75, 77, 79, 710, 711 (Due
Feb. 18) 




16 W 
Feb. 13 
Soil Expectation Value
(SEV) also called Willingness to Pay for Land(WPL) 
Text: Chapter 7 


Learn how SEV
from alternative land uses is a major factor determining land use 





17 F 
Feb. 15 
Laboratory  Financial Maturity of Single Trees ,
continued 
Lab. Exer. #5, Continued 
Objective: Determine when a tree
should be harvested based on financial criteria and compare to biological
maturity. 
(Due Feb. 22 ) 





18 M 
Feb.18 
Definition of inflation and its effects
on decisions 
Text Ch. 5 


Objective: Understand what inflation is, what causes it, and why it can lead to
bad decisions. 
NL Exer. 6,
Chapter 5 problems 51, 53, 55, 57, 59, 511, 513, 515 (Due
Feb. 27) 




19 W 
Feb. 20 
Inflation adjusted SEV, NPV, IRR

Text
Ch. 5 


Objective: Learn how to adjust cash flows to
estimate inflation adjusted SEV, NPV, IRR 





20 F 
Feb. 22 
Laboratory  Inflation adjusted NPV and IRR 

Objective: Conduct discounted
cash flow analysis, NPV and IRR with discount rate, revenues, and expenses
adjusted for inflation

Lab
Exercise #6
 Inflation adjusted
NPV and IRR calculations (Due March 1 ) 





21 M 
Feb. 25 
Market
Equilibrium and Structure, Derived Demand for Inputs 



Objective: Learn how markets balance the supply of and
demand for a good or service in a highly competitive and a monopolistic market.
Learn how the demand for logs is derived from the demand for lumber, and
demand for logs determines demand for stumpage 
Text:
Ch. 2 




22 W

Feb. 27 
BreakEven Analysis (Dr. Benjamin) 









23 F 
March 1 
Economics of Indiana Forestland and Crop Land 



Objective: Calculate WPL for
Indiana forestland 
Lab Exercise #7  Calculate WPL for Indiana Forestland and Crop
Land (Due March 22 ) Economics of Indiana Forestland PP, Row Crops
PP 




24 M

March
4 
Complete BreakEven Unit, Review for Examination 2 





25 W 
March 6 
Examination 2 
Past Examinations: 2012, 2011, 2010, 2000;
2008 Warning: Many questions in previous
exams are no longer relevent 




26 F 
March 8 
Holding and
Liquidation Value of Indiana Forestland 
Lab Exercise #7, Continued (Due March 22 ) 


Objective: Determine when the
current use of land should be changed or current use continued 






March 11  16 
Spring Break 





27 M 
March 18 
Introduction to Taxes 



Objective: Gain a basic
understanding of the range of federal, state, and local taxes affecting land
use and management decisions 
Text: Study Chapter 11 


28 W 
March 20 
Economic Aspects of Taxation 



Objective: Understand the basic features
of the Federal Income Tax system 
Text: Study Chapter 11 




29 F 
March 22 
Introduction
to Woody Barton Case Study 



Objective: Become familiar with the inventory and financial data
provided by Mr. Barton. Calculate NPV and IRR of revenues and expenses since
Mr. Barton purchased the property 





30 M 
March 25 
AfterTax NPV and IRR 



Objective: Be able to conduct aftertax DCF and
understand the impact of taxes on soil expectation value (SEV) 
Assign: Text Ch. 9 




31 W 
March 27 
Taxes, cont. 
Text Ch. 9 


Objective: Be able to conduct aftertax DCF and
understand the impact of taxes on soil expectation value (SEV) 





32 F 
March 29 
Barton Tree Farm case study 
Lab. Exercise #8  Case Study



(Due April 26) 





33 M

April 1 
Review for Exam 3 





34 W 
April 3 
Examination 3 





35 F 
April 5 
Barton Tree Farm case study and discuss exam 



Objective: Continue working on case study 





36 M 
April 8 
Tax
treatment of reforestation expenses 
Assign: 


Objective: Know how reforestation expenses are
recovered to tax purposes 





37 W 
April 10 
No class 



Objective: Work on paper 





38 F

April 12 
Woody
Barton Case Study 
Lab.
Exercise #8, Con't. 



(Due April 26) 




39 M 
April 15 
Forest Valuation and Appraisal 



Objective: Be able to
distinguish between valuation and appraisal, and how fair market values are
estimated for forestland and timber. 





40 W 
April 17 
Estimating Nonmarket Values (Dr.
Benjamin) 



Objective: Understand methods to estimate value of
benefits not traded in a market. 
Text: Study Chapter 12 




41 F 
April 19 
Work on WBTF Case 
Lab #8 Continued 


Objective: AfterTax IRR
and NPV 
(Due April 26) 




42 M

April 22 
Economics of Recreation (Dr. Benjamin) 



Objective:
Gain an
awareness of the economic and cultural role of outdoor recreation in forested
regions 
Study: Reeder and Brown . 2005. Recreation, Tourism,
and Rural WellBeing. USDA Economic research Report No. 7, 38 p. 




43 W 
April 24 
Forest Certification and Carbon Credit Markets, and Prof. Mills reviews timber mgt.
course and relationship to this course 



Objective: (1) Learn the basic concept of
carbon credit markets and how they can benefit woodland owners. (2) Understand how the concepts you have mastered in this
course will be applied in FNR 409, Timber Management 





44 F 
April 26 
Review for final 





Tuesday 
April 30, 
Final Examination Room FORS 216, 8:00
to 10:00 AM 

Friday 
May 3 
Research paper due
by 5:00 PM 

