An economic analysis of kiln drying for New Brunswick sawmills

Abstract

This report investigates the requirements of an economic assessment for a kiln drying process for New Brunswick sawmills. Capital and operating costs are developed to determine investment requirements. The potential return on investment given two spreads between the kiln dry price and green lumber price. Other direct benefits such as lower freight costs and inventory reduction benefits are investigated. The computer software package LOTUS 123 is used to determine loan amortization, annual expense statement, cash flow statements together with an appropriate internal rate of return. The results show that the rate of return on an investment in a kiln is dependent upon the savings created in other parts of the company's operations, the company's taxable income position and the price difference between kiln dried and green lumber.A minimal acceptable rate of return of 20% can not be obtained at this time. KEYWORDS amortization, cash flow, investment, IRR, LOTUS 123, MARR, operating expenses, revenues, savings