PK0-005 Project Management Concepts Practice Question
A project manager is evaluating the financial viability of several proposed projects. The steering committee wants to select projects that maximize return over time. Which TWO financial metrics should the project manager use to compare long-term profitability? (Select TWO).
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Net Present Value (NPV)
Net Present Value (NPV) and Internal Rate of Return (IRR) are discounted cash flow methods that account for the time value of money and are used for long-term profitability comparisons.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Net Present Value (NPV)
Why this is correct
NPV calculates the present value of future cash flows; positive NPV indicates profitability.
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Payback Period
Why it's wrong here
Payback period ignores time value of money and does not measure long-term profitability.
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Return on Investment (ROI)
Why it's wrong here
ROI is a simple ratio but does not consider time value of money as effectively as NPV and IRR.
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Internal Rate of Return (IRR)
Why this is correct
IRR is the discount rate that makes NPV zero; higher IRR indicates more profitable projects.
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Cost-Benefit Analysis
Why it's wrong here
Cost-benefit analysis compares benefits and costs but typically does not incorporate time value of money.
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