The Alternative Test in forestry

The Faustmann theory of discounted cash flow analysis remains relevant in our modern dynamic environment in which periodic reassessment of various alternatives to ongoing forest investments is necessary. The periodic reassessment can be done using the Alternative Test (ALT) approach, which simply compares the net present value of forest investments with new price and cost data and abandonment values. This monitoring approach ignores sunk costs but accounts for the new stream of benefits, the most likely future expenditures, and especially abandonment values, and is useful to readjust forest investment and management decisions any time after the initial investments are made. This approach is used here to explain recent changes in forest policy and investment decisions in America, Asia, and Europe.