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Under conditions of high savings and high multi-line performance, option D (automatic conversion) has about a 5 percent and 11 percent higher NPV with high and median ZIP+ 4 usage, respectively, than option A (single-line OCR). At low ZIP+4 usage,

all other percent or and high further to million in

things being equal, the option D advantage increases to a substantial 134

about $820 million in NPV.

multi-line

performance),

the

At a low savings rate (along with low relative advantage of option D over

about NPV.

310 percent although the absolute advantage decreases Even at low multi-line performance, option D has 53

to to

ZIP+4 usage A increases about $650 119 percent

relative advantage in NPV and a $320 to $250 million absolute advantage in high and low savings rate, respectively. Option E (hedge conversion) has the as option A at high or median ZIP+4 usage and the same NPV as option D at usage.

NPV, at a same NPV low ZIP+4

Option H (90-10 split procurement) also has a higher NPV than option A under almost all conditions. Option G (50-50 split procurement) has a significant although somewhat smaller advantage over option A at low ZIP+4 usage. Option G has a 34 to 271 percent relative advantage in NPV and a $170 to $710 million absolute advantage in NPV at low ZIP+4 usage, depending on the multi-line OCR performance rate and savings rate.

The ranking of the options by NPV is summarized below:

Option D

1 highest

Option D

1 highest

H

2

E

2 (tie)

E

3

H

3

Overall

NPV Rank

Low ZIP+4 Use

NPV Rank

OTA found that the NPV results are not very sensitive to the purchase price of the multi-line OCR or the number of multi-line OCR units. An increase in the purchase price from $850,000 to $970,000 or an increase in the number of units from 403 to 444 (as estimated by GAO to be required if the entire Phase [1 procurement was switched from single- to multi-line OCRs) would reduce NPV by about $20 to $30 million.

c

4

G

5

B

6

A

7 lowest

G

4

A

5

B

6

c

7

lowest

Net present value appears to be the best basis for comparative quantitative evaluation of the decision options. However, the actual undiscounted net cash flows over the 13 year payback period (1985-1998) can provide another dimension to the evaluation. Option A (single-line) is estimated to show positive cash flows of $8.8, $8.24, and $3.57 billion at high, medium, and low ZIP+4 usage. At high ZIP+4 usage, option B (multi-line with ZIP+4) is somewhat lower at $8.14 billion, options D (automatic conversion) and H (90-10 split procurement) somewhat higher at $9.36 billion and $9.24 billion respectively, and option G (50-50 split procurement) about the same at $8.75 billion. The comparisons between options change relatively little at median ZIP+4 usage.

However, at low ZIP+4 usage there is a substantial difference in net cash flows. Option A(single-line) shows a net cash flow of $3.57 billion. But, depending on the multi-line OCR performance rate, options D (automatic conversion) and H (90-10 split

11

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