Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

What distinguishes a greenfield project from a brownfield project?

1. A greenfield project is an expansion of an existing facility.

2. A greenfield project is existing, while a brownfield project is new.

3. A greenfield project is new and developed from scratch, while a brownfield project is an existing facility.

4. A greenfield project tends to have higher risks compared to a brownfield project.

The correct answer is: A greenfield project is new and developed from scratch, while a brownfield project is an existing facility.

The distinction between a greenfield project and a brownfield project is based on the nature of development concerning existing structures or facilities. A greenfield project is a new development that occurs on previously undeveloped land. It is built from the ground up without any existing buildings or infrastructure, allowing for greater design flexibility and the potential for modern technologies and practices to be incorporated from the outset. In contrast, a brownfield project involves the redevelopment or repurposing of an existing facility or site that has been previously used for industrial or commercial purposes. These projects often face challenges such as environmental remediation, dealing with existing infrastructure, and regulatory hurdles. The choice identifying that a greenfield project is new and developed from scratch while a brownfield project pertains to an existing facility correctly captures these definitions and highlights their fundamental differences. The understanding of this distinction is crucial in areas like project management, urban planning, and investment analysis, especially when evaluating the potential risks, costs, and returns associated with each type of project.