PK0-005 Project Management Concepts Practice Question

Answer analysis

Option-by-option breakdown

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

• ✗

  -$20,000

  Why it's wrong here

  This figure ignores discounting entirely, treating the $20,000 undiscounted net inflow as the answer. Discounting each year's cash flow at 10% reduces the present value below the raw sum, so the true NPV is smaller. It is tempting because summing nominal cash flows is the quickest arithmetic, and it would be correct only if the discount rate were zero.

• ✗

  $20,000

  Why it's wrong here

  This is the undiscounted net total of the cash flows ($30,000 + $40,000 + $50,000 - $100,000), not the NPV. Applying the 10% discount rate to each year's inflow lowers the present value below this figure. It is tempting as the raw sum, and would be correct only at a zero discount rate.

• ✗

  $2,103

  Why it's wrong here

  Discounting each cash flow at 10% gives $27,273, $33,058 and $37,566, totalling $97,897 against the $100,000 outlay — an NPV of -$2,103, not +$2,103. The figure is tempting because it is the correct magnitude, matching the arithmetic before the sign of the net result is applied.

• ✓

  -$2,103

  Why this is correct

  Discounting each inflow at 10% gives $27,273 + $33,058 + $37,566 = $97,897; subtracting the $100,000 outlay yields -$2,103. The negative NPV means the project returns less than the 10% discount rate, so it destroys value against that hurdle.