hardMultiple ChoiceObjective-mapped
PK0-005 Practice Question: A project manager is evaluating whether to…
A project manager is evaluating whether to proceed with a project that has a net present value (NPV) of -$10,000, an internal rate of return (IRR) of 4%, and a payback period of 3 years. The company's required rate of return is 6%. What should the project manager recommend?
⚠ Common exam trap
CompTIA often tests the misconception that a short payback period alone justifies project acceptance, ignoring that NPV and IRR are the primary financial decision criteria and that payback period does not account for the time value of money or profitability after the payback period.
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
✓
Reject the project because it does not meet financial criteria.
The project has a negative NPV (-$10,000) and an IRR (4%) that is lower than the company's required rate of return (6%). Both of these financial criteria indicate the project will destroy value rather than create it. Therefore, the project manager should recommend rejecting the project based on standard capital budgeting principles.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Defer the decision until a qualitative analysis is completed.
Why it's wrong here
Financial analysis already provides clear evidence; deferral is unnecessary.
- ✗
Accept the project because the payback period is less than 5 years.
Why it's wrong here
Payback period ignores time value of money and profitability.
- ✗
Request additional funding to improve the NPV.
Why it's wrong here
Additional funding does not change the underlying financial viability.
- ✓
Reject the project because it does not meet financial criteria.
Why this is correct
Negative NPV and IRR less than required rate mean project destroys value.
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