CAPM Business Analysis Frameworks Practice Question
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?
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
✓
The costs exceed the benefits over the project's life.
A negative net present value (NPV) indicates that the present value of the project's costs exceeds the present value of its benefits over the project's life. Therefore, the project is not financially viable. Option B is correct: the costs exceed the benefits. Option A is incorrect because a negative NPV means the project is not viable. Option C is incorrect because if benefits outweighed costs, NPV would be positive. Option D is incorrect because the payback period is not directly implied by NPV; a negative NPV does not necessarily mean a short payback period.
Answer analysis
Option-by-option breakdown
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.
- ✗
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.
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Written by Johnson Ajibi, MSc IT Security
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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.