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Basic Question 1 of 2
An expansion project is a project where a firm invests in ______.
B. developing new products to replace old products
C. research and development
A. new assets to increase sales
B. developing new products to replace old products
C. research and development
User Contributed Comments 7
| User | Comment |
|---|---|
| thud | An expansion project can be expansion into new products. |
| Farina | Yes, it can, but if the new product is to replace an old one (e.g., auto manufacturing) that is a requirement to stay in business, and doesn't automatically lead to increased sales. |
| rethan | Increases in sales = Expansion, whether it be in the market in which the firm is currently in operation or a market that the firm is entering |
| tabulator | As for option B, it explicitly states "to replace", so it's a replacement project. Option C, R&D is not an expansion or replacement project as it still needs to yield a result. |
| Sorcerer | A - Expansion project B - Repalcement project C - 'Other' project |
| Mulandi | I would like to look at the "Expansion" in the view of addition of capital base rather than investing in R&D to improve on the existing products, which could result in increase in sales BUT this will not be as a result of expansion but reduction of inefficiencies and continuous improvement on the company processes. Only if as a result if the company invests in R&D with a view of opening a new produt line which would require an addition capital investment, then at that time in my opinion would qualify to be capitalized as part of cost of expansion project. |
| Rasikh | R&D by its nature is risky and may or may not yield the desired result. Hence, it is premature to classify it as an expansion project. It is only when going commercial with the R&D results, that you can evaluate whether its expansion or replacement |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
describe types of capital investments
CFA® 2024 Level I Curriculum, Volume 2, Module 5.