CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
An investor is considering a toll road that is already open to traffic and generating revenue. Compared with a greenfield project, this brownfield investment most likely offers:
A brownfield toll road most likely offers more predictable cash flows and lower risk, because the asset is already built and has an operating history. Greenfield projects carry construction risk and no track record, but offer greater potential for capital appreciation.
- Ahigher construction risk and no operating history
- Blower initial returns but greater capital appreciation potential
- Cmore predictable cash flows and lower riskCorrect
Explanation
Brownfield infrastructure consists of existing assets with operating history, so cash flows are more predictable and risk is lower. Construction risk and lack of history are features of greenfield projects, which also tend to offer more appreciation potential and lower early income.
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