Quick Answer
The correct answer is that a negative net present value indicates the costs exceed the benefits over the project’s life. This interpretation stems directly from the NPV formula, which discounts all future cash inflows and outflows to their present value; when the result is negative, the present value of costs outweighs the present value of benefits, meaning the project destroys value rather than creating it. On the CAPM exam, this concept tests your ability to interpret cost-benefit analysis results, often appearing in questions about project selection or viability. A common trap is confusing negative NPV with a short payback period or assuming benefits still outweigh costs—neither is true. Remember the memory tip: “Negative NPV? The project is a money-loser, not a chooser.”
This CAPM practice question tests your understanding of business analysis frameworks. Read the scenario carefully and evaluate each option against the stated constraints before committing to an answer. After answering, compare your reasoning against the explanation and wrong-answer breakdown below. Once you have made your selection, read the full explanation to reinforce the concept and understand why each distractor is designed to mislead on exam day.
A BA is analyzing the cost-benefit analysis for a project and finds that the net present value (NPV) is negative. What does this indicate?
The project is financially viable.
Why wrong: Negative NPV indicates non-viability.
The costs exceed the benefits over the project's life.
That is what negative NPV means.
The benefits outweigh the costs.
Why wrong: Negative NPV means costs outweigh benefits.
The payback period is short.
Why wrong: NPV does not directly indicate payback period.
Answer choices
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
The costs exceed the benefits over the project's life.
Option C is correct because a negative NPV means that the present value of costs exceeds that of benefits over the project's life. Option A is incorrect because negative NPV indicates not viable. Option B is incorrect because benefits do not outweigh costs. Option D is incorrect because payback period is not directly indicated by NPV.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
For each option: why learners choose it and why it is or isn't the right answer here.
The project is financially viable.
Why it's wrong here
Negative NPV indicates non-viability.
The costs exceed the benefits over the project's life.
Why this is correct
That is what negative NPV means.
Related concept
Read the scenario before looking for a memorised answer.
The benefits outweigh the costs.
Why it's wrong here
Negative NPV means costs outweigh benefits.
The payback period is short.
Why it's wrong here
NPV does not directly indicate payback period.
Common exam traps
Many certification questions include familiar terms but test a specific constraint. Read the exact wording before choosing an answer that is generally true but wrong for this case.
Detailed technical explanation
This question should be treated as a scenario, not a definition check. Identify the problem, the constraint and the best action. Then compare each option against those facts.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
A practitioner preparing for the CAPM exam encounters this exact type of scenario on the job. The correct answer here is not the most general option — it is the best answer for the specific constraint described. Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option. Real exam questions reward reading the full scenario before eliminating options, because the constraint defines which answer fits.
What to study next
Identify which CAPM exam domain this question belongs to, then review the specific concept being tested. Practise related questions in that domain and focus on understanding why each wrong answer is tempting — not just why the correct answer is right.
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FAQ
Business Analysis Frameworks — This question tests Business Analysis Frameworks — Read the scenario before looking for a memorised answer..
The correct answer is: The costs exceed the benefits over the project's life. — Option C is correct because a negative NPV means that the present value of costs exceeds that of benefits over the project's life. Option A is incorrect because negative NPV indicates not viable. Option B is incorrect because benefits do not outweigh costs. Option D is incorrect because payback period is not directly indicated by NPV.
Identify which CAPM exam domain this question belongs to, then review the specific concept being tested. Practise related questions in that domain and focus on understanding why each wrong answer is tempting — not just why the correct answer is right.
Read the scenario before looking for a memorised answer.
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Last reviewed: Jun 24, 2026
This CAPM practice question is part of Courseiva's free PMI certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the CAPM exam.
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