Specialized Discounted Cash Flow Analysis Formulas for Valuation of Benefits and Costs of Urban Trees and Forests
Kristin S. Peterson and Thomas J. Straka
Abstract: Urban trees and forests have distinct benefits and costs that can be evaluated financially. While there are appraisal methods commonly used to value individual trees and urban forests, one method that is difficult to use in practice is a discounted cash flow (DCF) analysis. This is the appraisal method that best accounts for the time value of money and allows for a temporal comparison of benefits and costs. Current timber appraisal methods are discussed for urban situations and DCF analysis is presented as a viable supplemental appraisal method for valuation of the urban trees. Simple models are presented that allow for the solution of DCF-type urban forestry valuations using conventional software valuation packages. Examples are provided of typical urban tree benefit and cost scenarios, with DCF calculations of present value (PV) and net present value using the specialized DCF formulas.
Keywords: Appraisal; Discount Rate; Discounted Cash Flow Analysis; Financial; Net Present Value; Present Value; Urban Forestry; Valuation.