PK0-005 Project Management Concepts Practice Question
A project sponsor is reviewing a project that has a Net Present Value (NPV) of -$15,000. What should the sponsor recommend?
⚠ Common exam trap
Watch out — candidates often confuse IRR with NPV — candidates see 'positive IRR' and assume the project is viable, forgetting that IRR must be compared against the hurdle rate and that NPV is the authoritative decision metric.
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 NPV is negative
Net Present Value measures the difference between the present value of cash inflows and outflows; a negative NPV means the project is expected to destroy value at the required discount rate. The sponsor should therefore reject the project, since accepting a negative-NPV project would reduce shareholder value. NPV is the primary capital-budgeting criterion, so a negative result is a clear reject signal.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Proceed with the project because NPV is negative
Why it's wrong here
A negative NPV means discounted benefits fall short of discounted costs, destroying value, so proceeding is unjustified. It tempts because negative figures sometimes represent costs or outflows, but here NPV is the decision metric and its sign dictates rejection.
- ✓
Reject the project because NPV is negative
Why this is correct
A negative NPV means the project's discounted future cash inflows are worth less than the initial investment, destroying value. Rejecting it is the financially sound recommendation, satisfying the stem's constraint that the sponsor act on the -$15,000 figure.
- ✗
Proceed if the IRR is positive
Why it's wrong here
IRR ignores NPV's absolute dollar result; a positive IRR can coexist with a negative NPV when cash flows are discounted at the hurdle rate. IRR suits ranking independent projects, but here the negative NPV already signals value destruction at the required rate.
- ✗
Reject only if the payback period is too long
Why it's wrong here
Payback period measures breakeven timing, not discounted value, so a short payback cannot rescue a project whose NPV is negative. Payback suits liquidity or risk screening, but the stem's NPV of -$15,000 already fails the value criterion.
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Last reviewed September 2026 · checked against the official CompTIA exam blueprint
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