CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
Compared with a greenfield infrastructure project, a brownfield project is most likely to have:
A brownfield project most likely has lower expected cash flow volatility and a lower required return. It is already built and operating, with a track record of demand and revenues. Greenfield projects face construction risk, demand uncertainty and delayed cash flows, so investors require higher returns.
- Ahigher expected return and greater construction risk
- Blower expected cash flow volatility and a lower required returnCorrect
- Cmore uncertain demand and longer time before cash flow begins
Explanation
Brownfield assets are operating, with a history of cash flows, so volatility and required returns are lower. Greenfield projects carry construction and demand risk and delayed cash flows, and so demand higher expected returns.
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