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?
⚠ Common exam trap
CAPM often tests the confusion between NPV and payback period — candidates see 'costs exceed benefits' and second-guess themselves because they conflate discounted NPV with undiscounted cash-flow totals or recovery time.
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 means that, after discounting all future cash inflows and outflows back to present value using the required rate of return, the project's costs exceed its benefits. In other words, the project would destroy value rather than create it, so it should generally be rejected unless non-financial strategic factors override the analysis.
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
Financial viability requires a positive NPV, meaning discounted benefits exceed discounted costs at the required rate. A negative NPV shows the project destroys value and should be rejected on financial grounds. The option states the opposite of what the negative figure indicates.
- ✓
The costs exceed the benefits over the project's life.
Why this is correct
A negative net present value means discounted future cash inflows are worth less than the initial and ongoing outflows, so total costs exceed total benefits across the project's life. The project therefore destroys value at the required rate of return and should not proceed as analysed.
- ✗
The benefits outweigh the costs.
Why it's wrong here
A negative NPV means discounted costs exceed discounted benefits, so benefits do not outweigh costs. The option reverses the actual relationship. Positive NPV, not negative, indicates benefits exceed costs and the project adds value at the required rate of return.
- ✗
The payback period is short.
Why it's wrong here
Payback period measures how quickly cumulative cash inflows recover the initial investment; it is calculated independently of NPV and can be short even when discounted cash flows are negative. A negative NPV signals the project destroys value at the required discount rate, regardless of payback timing.
Go deeper
Related to this question
About these practice questions
This CAPM question is part of Courseiva's 451-question bank — original exam-style content with full explanations and wrong-answer analysis, never real exam questions or exam dumps. Learn why practice questions differ from exam dumps →
JA
Written and reviewed by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
Last reviewed September 2026 · checked against the official PMI exam blueprint
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.