Suppose the Navy is considering three alternatives to replace an aging fleet of executive transport aircraft. The three alternatives are (a) Buy 10 Puddle Jumpers; (b) Buy 10 Mud Skippers; (c) Lease 10 Criss Crossers; and (d) the status quo is to continue to maintain the existing fleet of 10 Maxi-Fliers. The period of comparison is 25 years (FY17 through FY41). The alternatives, and the status quo are outlined below:a. Status quo (Maxi-Flier): Ten aging Maxi-Fliers. The Maxi-Fliers can carry 20 passengers, have a range of 2800 nautical miles, achieve a fuel economy of 20 gallons per nautical mile, and have a cruising speed of 350 knots. Beginning in FY17, the annual O&S cost to maintain the ten aircraft will be $20M per year per aircraft. It is expected that due to further aging and degradation, this O&S cost will increase by $1M per aircraft every year. If one of the alternative options is chosen, then the ten Maxi-Fliers will be sold on the foreign market for $12M per aircraft. b. Buy Option 1 (Puddle Jumpers): The first purchase alternative is to acquire ten new Puddle Jumpers. The Puddle Jumpers can carry 17 passengers, have a range of 2900 nautical miles, achieve a fuel economy of 21 gallons per nautical mile, and have a cruising speed of 475 knots. The annual O&S cost is expected to be $12M per year per aircraft, increasing to $16M per year in the 11th year of operation. These aircraft will be purchased immediately beginning in FY17 at a cost of $32M each, half of which must be paid at the beginning of FY17, and the remaining half of which must be paid at the beginning of FY22.c. Buy Option 2 (Mud Skippers): Another purchase alternative is to acquire ten new Mud Skippers. The Mud Skippers can carry 22 passengers, have a range of 3200 nautical miles, achieve a fuel economy of 15 gallons per nautical mile, and have a cruising speed of 400 knots. The annual O&S cost is expected to be $10M per year per aircraft, increasing to $13M per year in the 11th year of operation. If this alternative is chosen, it will require one year to modify the hangar at a cost of $10M. The hangar modification will occur in FY17, and the aircraft will then be purchased in FY18. Meanwhile, the Navy will continue to use the Maxi-Fliers during FY17. The ten aircraft can be procured for $35M each, paid in full at the beginning of FY18.d. Lease Option (Criss Crossers): The leasing alternative is to lease ten new Criss Crossers. The Criss Crossers can carry 16 passengers, have a range of 2700 nautical miles, achieve a fuel economy of 17 gallons per nautical mile, and have a cruising speed of 310 knots. The leasing cost is $18M per year per aircraft and includes annual operations and maintenance. These aircraft will be leased immediately beginning in FY17.The base commander has asked for an economic analysis of these four alternatives. The four key attributes are (1) number of passengers that can be carried; (2) cruising range; (3) fuel economy (careful – smaller is better in this case); and (4) cruising speed. Furthermore, the base commander has established importance weights for these four attributes for use in the economic analysis. These metrics are displayed in the table below: Perform an economic analysis of these three alternatives, given the information provided. Use the most current Constant (Real) Discount Rates from OMB Circular A-94 (provided in table below). Don’t forget to make a recommendation. OMB table:Period of Analysis (Years) Constant Dollar Current DollarAt Least But Less Than Rate (Real Rate) Rate (Nominal Rate) 4 -0.5% 1.4%
4 6 -0.3% 1.7%6 9 0.0% 1.9%9 20 0.1% 2.1% 20 0.5% 2.5% For constant $ For current $