CFA Practice Question

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CFA Practice Question

An expansion project is a project where a firm invests in ______.

A. new assets to increase sales
B. developing new products to replace old products
C. research and development
Correct Answer: A

Expansion projects deal with investment in new assets to increase firms' sales.

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
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