THE THEORY OF INTEREST

year of growth and cutting it at the end of ten years, toreceive an income item of 1000 cords (or $1000, assumingan unchanging price of $1 a cord). The two alternativesmay be put in precisely the same tabular form as the onepreviously employed for the case of forestry and farmingas follows:

Table 8

Optional Incomes from Forest

10-Year Plan

9-Year Plan

Difference inFavor of

10-Year Plan

1st year.

$000

$000

2nd year .

000

000

9th year .

666

666

—900

10th year .

1000

000

+1000

The last column shows that the ten-year plan, comparedwith the nine-year plan, involves a cost of 900 in theninth year, but involves a return of 1000 in the tenthyear. The rate of the return (100) over the cost (900)would thus be a little over 11 per cent. If the rate of in-terest in the market is 5 per cent, it would evidently payto wait, that is, to postpone the cutting to the tenth year.

The next option would be to cut in the eleventh year,which, as compared with the previous or ten-year plan,would, let us say, cost 1000 in the tenth year and return1050 in the eleventh year—in other words, give a rateof return over cost of 5 per cent. Evidently, then, it wouldbe a matter of indifference whether the forest were cutin the tenth or eleventh year, inasmuch as the rate ofreturn over cost would be exactly equal to the rate ofinterest.

Similar reasoning might show that the choice of thenext option, that of cutting the forest in the twelfth year,

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