{"id":40260,"date":"2022-10-21T05:01:37","date_gmt":"2022-10-21T05:01:37","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=40260"},"modified":"2026-01-09T10:12:29","modified_gmt":"2026-01-09T10:12:29","slug":"types-of-capital-investments-made-by-companies","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/corporate-issuers\/types-of-capital-investments-made-by-companies\/","title":{"rendered":"Types of Capital Investments Made by Companies"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Capital Investments (2025 Level I CFA\u00ae Exam \u2013 Corporate Issuers \u2013 Module 4)\",\n  \"description\": \"This CFA Level 1 Corporate Issuers video covers Capital Investments (also known as capital budgeting). It explains how firms evaluate long-term asset purchases using NPV and IRR, including decision-making, forecasting cash flows, real options, project sequencing, and pitfalls like pet projects and forecasting errors. Emphasis is placed on shareholder value maximization.\",\n  \"uploadDate\": \"2022-09-29T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/i.ytimg.com\/vi\/mpz9JHQoarw\/hqdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=mpz9JHQoarw\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/mpz9JHQoarw\",\n  \"duration\": \"PT1H07M58S\"\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following projects is most likely considered the riskiest?\",\n    \"text\": \"Which of the following projects is most likely considered the riskiest?\\n\\nA. Other projects.\\nB. Regulatory projects.\\nC. Going concern projects.\",\n    \"answerCount\": 3,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"Other projects.\",\n      \"dateCreated\": \"2024-01-01\",\n      \"upvoteCount\": 0\n    },\n    \"suggestedAnswer\": [\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Regulatory projects.\"\n      },\n      {\n        \"@type\": \"Answer\",\n        \"text\": \"Going concern projects.\"\n      }\n    ]\n  }\n}\n<\/script>\n\n\n\n\n<iframe loading=\"lazy\" width=\"611\" height=\"344\"\n  src=\"https:\/\/www.youtube.com\/embed\/mpz9JHQoarw\"\n  title=\"YouTube video player\"\n  frameborder=\"0\"\n  allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\"\n  referrerpolicy=\"strict-origin-when-cross-origin\"\n  allowfullscreen>\n<\/iframe>\n\n\n\n<p>Capital investments are undertaken to either maintain the existing business or\/and grow it. There are four main types of capital investments:<\/p>\n<ol>\n<li>Going concern (or maintenance) projects.<\/li>\n<li>Regulatory or compliance projects.<\/li>\n<li>Expansion projects.<\/li>\n<li>Other projects.<\/li>\n<\/ol>\n<p>While growth projects and other projects are initiated to develop a firm strategically, going concern (or maintenance) projects and regulatory or compliance projects ensure business continuation.<\/p>\n<h2><strong>Business Maintenance<\/strong><\/h2>\n<h3><strong>Going Concern Projects<\/strong><\/h3>\n<p>These are projects required to sustain present operations, keep a firm at its current size, or boost business efficiency. Infrastructure improvement is an example of a going concern project. Firm managements easily assess going concern projects since the expenses they attract are mostly lower compared to the production or business interruption costs that may arise from failure to invest.<\/p>\n<p>Managers frequently attempt to align financing to an asset&#8217;s lifespan to pay for these projects. For instance, to finance equipment replacement with a 20-year projected useful life, a business may issue a 20-year bond.<\/p>\n<p>Corporations do not disclose capital expenditure costs related to going concern projects in financial statements. Analysts often use the depreciation and amortization expense shown on the income statement as a proxy for going concern capital expenditure.<\/p>\n<h3><strong>Regulatory or Compliance Projects<\/strong><\/h3>\n<p>These projects are usually undertaken due to a requirement by a governmental agency, insurance company, or some other external party. They often do not generate revenue for a company. Instead, however, they generate regulatory or compliance expenditures. This can be an obstacle to entry into a market, which could be advantageous to incumbents. Nevertheless, in some instances, it may be more prudent to shut down part of the business related to the project, e.g., factory pollution control installation.<\/p>\n<h2><strong>Business Growth<\/strong><\/h2>\n<h3><strong>Expansion Projects<\/strong><\/h3>\n<p>Projects that increase a firm&#8217;s size generally come with higher levels of risk and uncertainty than going concern projects. An example would be a merger and acquisition. There are two major risks with acquisitions: the difficulty in integrating business operations of the acquirer and the target. In addition, there is the risk of overpaying.<\/p>\n<h2><strong>Other projects<\/strong><\/h2>\n<p>Projects beyond a company&#8217;s traditional business areas include high-risk investments and new growth efforts, e.g., innovation projects. These initiatives are probably on the riskier end of the capital investment spectrum.<\/p>\n<blockquote>\n<h2 style=\"text-align: left;\"><strong>\u00a0<\/strong><strong>Question<\/strong><\/h2>\n<p style=\"text-align: left;\">Which of the following projects is <em>most likely <\/em>considered the riskiest?<\/p>\n<ol style=\"list-style-type: upper-alpha; text-align: left;\">\n<li>Other projects.<\/li>\n<li>Regulatory projects.<\/li>\n<li>Going concern projects.<\/li>\n<\/ol>\n<p style=\"text-align: left;\">The correct answer is<strong> A<\/strong>.<\/p>\n<p style=\"text-align: left;\">Other projects are considered the riskiest. These projects are beyond a company\u2019s traditional business area and include high-risk investments and new growth efforts, e.g., exploration investments into new innovations.<\/p>\n<p style=\"text-align: left;\"><strong>B is incorrect<\/strong>. Regulatory or compliance projects are undertaken due to a regulator or government agency requirement. They do not generate any revenue for a company. However, it incurs compliance expenditure.<\/p>\n<p style=\"text-align: left;\"><strong>C is incorrect<\/strong>. Going concern projects are required to sustain present operations. This involves keeping the firm at its current size or boosting efficiency. These projects are not risky since they are already in operation.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>Capital investments are undertaken to either maintain the existing business or\/and grow it. There are four main types of capital investments: Going concern (or maintenance) projects. Regulatory or compliance projects. Expansion projects. Other projects. While growth projects and other projects&#8230;<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[25],"tags":[],"class_list":["post-40260","post","type-post","status-publish","format-standard","hentry","category-corporate-issuers","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Types of Capital Investments by Companies | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn about the four main types of capital investments: maintenance, regulatory, expansion, and strategic projects.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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