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?
⚠ Common exam trap
PK0-005 often tests whether candidates confuse payback period (liquidity/risk) with NPV or IRR (profitability); the trap is selecting the project with the higher total return or lower investment instead of computing the actual payback ratio.
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 measures how long it takes to recover the initial investment. Project A recovers $100,000 at $30,000/year, taking about 3.33 years. Project B recovers $50,000 at $20,000/year, taking 2.5 years. Since Project B has the shorter payback period, it is preferred under this selection method because the organization recovers its capital faster, reducing risk exposure.
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
A longer payback period is the opposite of desirable under this metric; selection favours the shorter recovery time. Project A's 3.33 years exceeds Project B's 2.5 years. The reasoning inverts the criterion, confusing duration with benefit.
- ✓
Project B, because it has a shorter payback period
Why this is correct
Payback period divides initial investment by annual cash flow: Project A recovers its $100,000 in roughly 3.33 years, while Project B recovers $50,000 in 2.5 years. Project B's shorter payback satisfies the selection criterion, returning capital sooner.
- ✗
Project B, because it has a lower initial investment
Why it's wrong here
Payback period measures time to recover the investment, not capital size: Project A recovers in 3.33 years, Project B in 2.5 years, so B wins on speed. Lower initial investment is tempting because it reduces exposure, but that is a budget criterion, not payback.
- ✗
Project A, because it has a higher total return
Why it's wrong here
Payback period ignores total return entirely; it counts years until cumulative cash flow covers the outlay. Project A takes 3.33 years versus Project B's 2.5, so A loses. Total return is tempting because it reflects profitability, but that belongs to NPV or ROI analysis.
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Written and reviewed by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
Last reviewed September 2026 · checked against the official CompTIA exam blueprint
This PK0-005 practice question is part of Courseiva's free CompTIA certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the PK0-005 exam.