CFA Level I · CFA Level I Exam · Real Estate and Infrastructure
Compared with a greenfield infrastructure project, a brownfield project that is already operating most likely offers an investor:
A brownfield project most likely offers more predictable cash flows and lower development risk, because the asset is already built and operating with a track record. Greenfield projects carry construction risk and uncertain initial cash flows, though they may offer higher potential returns.
- Ahigher construction risk and lower initial cash flow
- Bgreater ability to use the asset's long-term growth option
- Cmore predictable cash flows and lower development riskCorrect
Explanation
Operating brownfield assets have a history of cash flows and no construction phase, so development risk is lower and cash flows are more predictable. Option A describes greenfield. Option C is wrong because the growth option is typically greater for new projects, with returns more dependent on future development.
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