PK0-005 Project Management Concepts Practice Question

Answer analysis

Option-by-option breakdown

For each option: why learners choose it and why it is or isn't the right answer here.

• ✓

  The project is not financially viable

  Why this is correct

  A negative NPV means the discounted present value of expected cash inflows is less than the initial investment, so the project destroys value at the required rate of return and should not proceed on financial grounds.

• ✗

  The project will generate a profit of $5,000

  Why it's wrong here

  A negative NPV of -$5,000 means discounted future cash inflows fall $5,000 short of the initial outlay, indicating a net loss in present-value terms. It is tempting because the figure is a dollar amount, but the sign denotes value destroyed, not profit generated.

• ✗

  The project should be accepted because NPV is positive

  Why it's wrong here

  The NPV is negative, not positive, so acceptance on that basis contradicts the figure given. It is tempting because positive NPV is the standard accept criterion, but -$5,000 destroys value and the project should be rejected unless qualitative factors override the calculation.

• ✗

  The payback period is less than 5 years

  Why it's wrong here

  NPV discounts all future cash flows to present value; it says nothing about how long recovery takes. Payback period is a separate calculation measuring elapsed time until cumulative inflows equal the outlay. A negative NPV does not imply recovery within five years — it may never occur.