Examining short-rotation hybrid poplar investments by using stochastic simulation

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Abstract
We examined and compared short-rotation hybrid poplar investments using standard discounted cash flow and stochastic simulation. With stochastic simulation, triangular probability density functions were used to describe the values for three important uncertain factors: product price, product yield, and harvest and transport costs. We found that the net present value per acre could range from a minus $310 to a positive $1010 with a mean value of about $140, using a 4% discount rate. Based on the assumptions we used, product price uncertainty was found to be the major cause of uncertainty surrounding the financial returns from a short-rotation system. Because information on future prices is limited, decisions about short-rotation systems should be made carefully. Analyzing uncertainty by using imprecise input data cannot produce both accurate and precise results, but thinking through the uncertainties and collecting information should help investors make better choices.

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