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PK0-005 Project Management Concepts Practice Question

A project manager is evaluating two project proposals. Project A has an initial investment of $100,000 and is expected to generate cash flows of $30,000 per year for 5 years. Project B has an initial investment of $50,000 and cash flows of $20,000 per year for 3 years. Using payback period, which project should be selected?

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

✓

Project B, because it has a shorter payback period

Payback period: Project A = $100,000/$30,000 = 3.33 years. Project B = $50,000/$20,000 = 2.5 years. Shorter payback is better, so Project B is selected.

Answer analysis

Option-by-option breakdown

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

✗
Project A, because it has a longer payback period
Why it's wrong here
Longer payback is worse.
✓
Project B, because it has a shorter payback period
Why this is correct
Project B pays back in 2.5 years vs 3.33 for A.
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Project B, because it has a lower initial investment
Why it's wrong here
Payback period considers both investment and cash flows.
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Project A, because it has a higher total return
Why it's wrong here
Payback period does not consider total return.

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PK0-005 Project Management Concepts Practice Question

Why each option matters

Option-by-option breakdown

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