Seneca Timber Lands owns several acres of prime timberland. If the ﬁrm harvests the timber today, they could sell it for $4.5 million. However, Seneca believes that the timber will be worth $5.2
Million next year. Seneca should exercise the option to:
A) Abandon.
B) Wait.
C) Quit.
D) Retire.
E) Expand.

Question

Quizplus · Accepted Answer

Seneca should wait and not harvest the timber today, as the expected value of the timber next year is higher than the immediate sale value. Waiting will result in a higher return on the investment.

Seneca Timber Lands Owns Several Acres of Prime Timberland