PK0-005 Project Management Concepts Practice Question
A senior manager is comparing two projects for selection. The manager wants to use a method that considers the time value of money. Which TWO project selection methods incorporate the time value of money?
⚠ Common exam trap
PK0-005 often tests the distinction between discounted cash flow methods (NPV, IRR) and non-discounted methods (payback period, ROI), causing candidates to incorrectly include payback or ROI as time-value methods.
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
✓
Internal rate of return (IRR)
Internal rate of return (IRR) (B) is correct because it discounts all future project cash flows to find the discount rate at which the project's net present value equals zero, explicitly applying the time value of money. Net present value (NPV) (C) is also correct because it discounts future cash inflows and outflows back to their present value using a specified discount rate, directly reflecting that a dollar today is worth more than a dollar in the future. The remaining options do not inherently incorporate the time value of money: payback period (A) simply measures how long it takes to recover the initial investment without discounting, return on investment (D) is a simple ratio of net benefits to costs without discounting, and cost-benefit analysis (E) compares benefits and costs but does not necessarily discount them to present value.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Payback period
Why it's wrong here
Payback period measures how quickly cumulative cash flows recover the initial investment, ignoring discounting and any cash flows after the break-even point. It is tempting because it addresses financial return and risk timing, but it would be correct when the criterion is speed of capital recovery rather than discounted value.
- ✓
Internal rate of return (IRR)
Why this is correct
IRR discounts all project cash flows to the rate at which net present value equals zero, so it explicitly compounds cash flows over time. That discounting mechanism is what satisfies the stem's requirement for a method incorporating the time value of money.
- ✓
Net present value (NPV)
Why this is correct
NPV discounts every future cash inflow and outflow back to present value using the cost of capital, then sums them. This discounting is precisely the time value of money mechanism the stem requires when comparing candidate projects.
- ✗
Return on investment (ROI)
Why it's wrong here
Return on investment divides net profit by cost as a percentage, without discounting future cash flows to present value. It is tempting because it compares project profitability numerically, but it would be the right choice when ranking investments by percentage yield rather than by discounted cash flow.
- ✗
Cost-benefit analysis
Why it's wrong here
Cost-benefit analysis totals expected costs and benefits without discounting them to present value, so future cash flows are treated at face value. It is tempting because it underpins business cases and compares alternatives, but it would be the right choice when ranking projects on net monetary benefit rather than on discounted cash flow.
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Last reviewed September 2026 · checked against the official CompTIA exam blueprint
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