CAPM Business Analysis Frameworks Practice Question
A business analyst is performing a cost-benefit analysis for a proposed system upgrade. The upgrade costs $50,000 upfront and saves $15,000 per year in operational costs. The project has a 5-year horizon. What is the payback period in years?
⚠ Common exam trap
The trap is the distractor 0.33, which is the reciprocal of the correct answer — candidates who invert the formula (savings ÷ cost) instead of cost ÷ savings will pick it.
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
✓
3.33 years
The payback period is the upfront cost divided by the annual savings: $50,000 ÷ $15,000 = 3.33 years. This is the time required for cumulative savings to equal the initial investment. It is a simple, undiscounted measure that ignores the time value of money and any cash flows beyond the payback point.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
5.00 years
Why it's wrong here
Five years equals the full project horizon, not the payback point; $50,000 divided by $15,000 annual savings gives 3.33 years. Selecting the horizon is tempting because it bounds the analysis, and it would be correct if asked for the project's total duration rather than the break-even period.
- ✗
4.00 years
Why it's wrong here
Four years does not match $50,000 ÷ $15,000, which is 3.33 years; cumulative savings reach only $45,000 by year three and $60,000 by year four. Rounding up to a whole year is tempting for simplicity, and it would be correct if the question asked for the first full year in which cumulative savings exceed cost.
- ✓
3.33 years
Why this is correct
Payback period divides the initial outlay by the annual net saving: $50,000 ÷ $15,000 = 3.33 years. The 5-year horizon is irrelevant to this calculation, since payback measures only the time required to recover the upfront investment from cumulative savings.
- ✗
0.33 years
Why it's wrong here
Dividing the annual saving by the upfront cost inverts the payback calculation; the correct figure is $50,000 ÷ $15,000 = 3.33 years. The reciprocal is tempting because it resembles a simple return ratio, and it would be correct if the question asked for savings as a fraction of initial investment.
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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.