INVESTMENT OPPORTUNITY PRINCIPLES

Table 6

Farming and Forestry Use Compared by Method of Comparative

Advantage

Annual Valueof FarmingUses

Annual Valueof ForestryUses

Difference inFavor ofForestry Use

1st year .

$450

• • •

-$450

2nd year .

450

—450

3rd year .

450

$300

—150

4th year .

450

400

—50

5th year .

450

500

+50

6th year .

450

500

+50

7th year .

450

500

+50

8th year .

450

500

+50

9th year .

450

500

+50

10th year .

450

500

+50

11th year .

450

500

+50

Each year thereafter.

450

500

+50

as investments or costs and the advantages of $50 eachyear in perpetuity as returns on these investments orcosts. And he could think of the proposal to substitutethe forestry use for the farming use as an opportunityto invest the $450, $450, $150, and $50 for the sake ofsecuring the return of $50 each year thereafter. If, now,we take the total present value, at 4 per cent, of the de-ficiencies, or investments, of $450, $450, $150, and $50, weshall obtain $1025, whereas the present value of the re-turns of $50 per annum beginning in five years and con-tinuing in perpetuity will be $1069. Thus the presentvalue (at 4 per cent) of the gains exceeds the presentvalue of the sacrifices or costs by the difference between$1069 and $1025. As reckoned in present estimation, thegains of income outweigh the costs or sacrifices of in-come. We may say, therefore, that, the rate of interestbeing 4 per cent, forestry is preferable to farming becauseof a surplus of advantages over disadvantages reckonedin present value. Thus, the opportunity to invest by

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