Purchasing Used Plant Capacity. The opportunity to purchase used, but newly-reconditioned, plant
capacity at prices 20% below the cost of new construction may arise at some point. Used capacity
becomes available for purchase any time a company in your industry elects to reduce the production
capacity at one or more of its plants by selling some (or even all) of capacity to merchants who specialize
in buying used plant capacity in increments of 100,000 pairs and then reselling it to interested footwear
companies. The amount of any used capacity that is available from these merchants, the geographic area
in which it is available (plant capacity cannot be transported from one geographic region to another), and
the prices of such capacity are shown on Purchase Capacity screen (see the Purchase Capacity button
near the top of the Plant Capacity screen). All purchases of used capacity occur on a first-come
basis. The advantage of buying used capacity is that it can be purchased and made available for use
virtually overnight (purchased capacity becomes available in the same year that it is purchased). However,
if your company does not have a plant in the geographic region where you are considering
purchasing used capacity, then the minimum-size purchase is 1 million pairs; this is because plants
smaller than 1,000,000 pairs of annual capacity tend to have prohibitively high production costs and
usually cannot be cost competitive against larger-scale plants. Because used capacity is reconditioned, it
is considered to have a service life of 20 years. The capital cost is depreciated on a straight-line basis at
the rate of 5% annually