Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 10 pages in length and its case teaching package is 10 pages.

Abstract

In 1987 National Paper, a major forest products company, was also one of the largest private landowners in the US. National Paper owned or controlled 4.6 million acres of timberland, an area larger than Massachusetts and Rhode Island combined. This case considers the financial and strategic aspects of that investment.

This case study concerns the timberland holdings of a major paper and wood products company. Whether to retain a very large investment (4.6 million acres) or divest part or even all of it is the subject of the case. This is certainly a major strategic decision for the firm since it involves billion dollar cash flows spread out over 30 to 50 year growth cycles.

Linkages to Textbooks or Journal Articles/Fit Within a Course

The case study is included in the book for two reasons. First, it illustrates very nicely how the role of financial analysis shrinks dramatically when the strategic issues become this major—thus the subtitle, strategic financial analysis which isn't! As this case illustrates, very nicely, for problems of this duration and magnitude, financial analysis tends not to be very strategically oriented and strategic analysis tends not to be very financially oriented.

A second reason for including this case is the way it illustrates how the choice of internal accounting and reporting systems can play a major role in shaping the way firms look at the strategic issues. The accounting reports definitely constitute a "lens" through which management views the current results of its past strategic commitments. When that "lens" most closely resembles a pair of "rose colored glasses", the strategic assessment process is affected in ways management may not fully appreciate.

The case is a very rich and complex one which we often use at Tuck as the last class in the Managerial Accounting course. There is sufficient financial information in the case to permit students to virtually bury themselves in numbers if they want to view the case as an exercise in financial analysis. There is a certain surface plausibility to the notion that National would only be in the tree business if they believe, ex ante, that the expected returns are good. Thus, since they are in the business in a very big way, it should be possible to show reasonable returns, somehow, based on case facts.

Study Questions

1. Using the information in Exhibit 3 of the case, evaluate the prospective profitability over the growing cycle of planting one acre of trees in Texas, Maine, and Washington. The time value of money is obviously one issue here since the cash flows are spread over many years. Present your analysis in real terms in order to eliminate one major assumption (future inflation rates). You may also assume that land values for timberland (ex trees) will move in direct proportion to timber or "stumpage" prices. Use a tax rate of 35%.
        Do you believe it is more useful to make assumptions about real price escalation and solve for an expected rate of return or to assume a break-even real hurdle rate and solve for the implicit price escalation necessary to yield that return?
2. What do you believe should be National's timberlands strategy in 1987? Why?

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

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