PK0-005 Project Management Concepts Practice Question
A project manager is evaluating two project proposals. Proposal A has an NPV of $50,000 and a payback period of 2 years. Proposal B has an NPV of $30,000 and a payback period of 1.5 years. Which proposal is more financially beneficial based on NPV?
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
✓
Proposal A because it has a higher NPV
Net Present Value (NPV) is the sum of present values of future cash flows. A higher NPV indicates greater profitability. Payback period is secondary.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Proposal B because it has a shorter payback period
Why it's wrong here
NPV is a more comprehensive measure of profitability than payback period.
- ✗
Cannot be determined from the information given
Why it's wrong here
NPV directly compares profitability.
- ✗
Both are equally beneficial
Why it's wrong here
The NPVs are different; higher NPV is better.
- ✓
Proposal A because it has a higher NPV
Why this is correct
Correct. Higher NPV means more profitability.
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