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Discussion of Key Assumptions

In developing and modeling the decision options, OTA made a variety of assumptions. The starting point for the OTA analysis was the January 1984 cost, savings, and cash flow projections for single-line OCR procurement (and related equipment including bar code readers and extended ZIP retrofit kits) provided by USPS to the Postal Board of Governors. - Using the USPS data as a base, key assumptions were adopted as is

or modified as necessary to fit the decision options analyzed assumptions are discussed below by option or groups of options.

by

OTA.

These

key

o

Time horizon. OTA assumed a 14-year time horizon, the same as was used by USPS. Thus, cash flows and ROI/NPV precalculated for the 1985-1998 time period.

o

Labor cost escalation rate. OTA assumed a 7.42 percent annual escalation in clerk/carrier labor costs, as was used by USPS. This escalation rate is based on a 10-year historical average.

o

Baseline cost and savings projections. OTA used the USPS cost and savings projections for single-line OCRs and related equipment. These projections were adjusted for the various options depending on extent and timing of single-line OCR deployment and uncertainties (where applicable) in ZIP+4 use and savings rate.

AllOptions

  • o

    Phase 11A procurement. USPS has identified a possible future procurement of automation equipment as Phase IIA. OTA has excluded this from all options and limited analysis to Phases I and II.

o

discount rate (or required ROI), as U.S. Government’s cost of capital

(estimated to be 12.0 to maturing in 1998-2001),

12.4 percent based on yields on U.S. Treasury bonds the USPS discount rate appears to be reasonable.

Discount rate.

was

used

by

OTA assumed a 15 percent

USPS.

Compared

to

the

36

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