CFA Level I · CFA Level I Exam · Capital Investments and Capital Allocation
A manufacturer plans to replace a worn-out packaging machine with an identical new model so that production can continue at the current level. This capital project is most likely categorized as a:
The project is a replacement project to maintain the business. The company is swapping worn-out equipment for an identical model to sustain current production, which is a classic maintenance-type capital project rather than an expansion into new products or a response to a legal requirement.
- Anew product or service project
- Breplacement project to maintain the businessCorrect
- Cregulatory or compliance project
Explanation
Replacing worn-out equipment with an identical model to keep current output is a replacement project aimed at maintaining the business. It does not add a new product or capacity, and no legal requirement drives it, so the other categories do not fit.
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