Indian Forest Service Examination Forest Economics & Valuation: practice questions

1 · Net present value, internal rate of return and benefit-cost ratio · medium

The internal rate of return is defined as:

1. The rate at which costs equal half the benefits
2. The interest rate charged by banks on forestry loans
3. The rate of inflation over the project life
4. The discount rate at which NPV equals zero

2 · Economic (financial) rotation versus biological rotation · medium

At a zero interest rate, maximising LEV is equivalent to maximising:

1. Total volume of timber harvested at the end of one rotation
2. Forest rent, the average annual undiscounted net revenue
3. The physical rotation of the species
4. The price of timber per cubic metre

3 · Forest valuation and stumpage appraisal · hard

Under international financial reporting standards for agriculture, forest biological assets in company accounts are generally measured at:

1. Historical cost of planting only
2. Zero until the trees are harvested
3. The replacement cost of the land
4. Fair value less costs to sell

4 · Valuation of non-market goods and ecosystem services · medium

The travel cost method values:

1. Timber, from the cost of hauling the logs from the forest to the mill
2. Houses from their distance to forests
3. Carbon from the cost of air travel avoided
4. Recreation sites from the costs visitors incur to reach them

5 · Valuation of non-market goods and ecosystem services · hard

A major criticism of contingent valuation is that:

1. It can measure only use values and never captures any non-use values at all
2. It always gives values identical to market prices
3. Hypothetical payments may overstate values, and results depend on design
4. It requires no sampling of respondents

6 · Cost-benefit analysis of forestry and agroforestry projects · medium

Economic cost-benefit analysis differs from financial analysis mainly in that it:

1. Uses only market prices and the owner's actual cash flows each year
2. Excludes all costs that occur after the first year
3. Ignores benefits that are received in cash
4. Uses society's perspective, shadow prices and externalities

7 · Forest taxation, subsidies and incentives · medium

Which is a perverse incentive that has contributed to deforestation in some countries?

1. Payments to farmers for keeping forest cover on their land
2. Land-titling rules that treat forest clearing as proof of use
3. Technical assistance for farm forestry
4. Tax deductions for tree planting costs

8 · Payments for ecosystem services · medium

In PES, additionality means that payments should:

1. Be added to the provider's existing government salary
2. Secure services that would not have been provided anyway
3. Increase each year by the inflation rate
4. Be made to the largest landowners first, since they hold the most forest

9 · Payments for ecosystem services · medium

REDD+ is a mechanism to:

1. Regulate exports of dried and processed timber products
2. Restore degraded farmland by planting only exotic species
3. Record the daily rainfall at forest research stations
4. Reducing emissions from deforestation and degradation, plus stock enhancement

10 · Payments for ecosystem services · hard

PES is most likely to succeed where:

1. No one benefits from the service and land rights are disputed by neighbours
2. The service is measurable, payers are identifiable and providers have secure tenure
3. The service cannot be measured and payments are unconditional
4. Providers have no control over land use