CAPM Practice Question: Project Management Fundamentals and Core Concepts
A project manager is evaluating two project proposals. Proposal A has a benefit-cost ratio (BCR) of 1.2 and a payback period of 3 years. Proposal B has a BCR of 1.5 and a payback period of 4 years. The organization has limited funds and wants to maximize return on investment. Which proposal should the project manager recommend?
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
✓
Proposal B, because it has a higher benefit-cost ratio
Proposal B has a higher benefit-cost ratio (1.5 vs. 1.2), indicating a greater return per unit cost. The organization wants to maximize ROI, and BCR is a direct measure of profitability relative to cost. Payback period is secondary; a shorter payback does not necessarily mean higher ROI. Option A is incorrect because Proposal A has a lower BCR. Option B is incorrect because a shorter payback period does not ensure maximum ROI. Option C is incorrect because the proposals are not equal; Proposal B has a higher BCR and thus a better financial return.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
Neither proposal; the organization should wait for better options
Why it's wrong here
This is incorrect because both proposals have a BCR greater than 1, indicating they are financially viable. Waiting for better options is unnecessary since Proposal B offers a higher return.
- ✗
Proposal A, because it has a shorter payback period
Why it's wrong here
This is incorrect because payback period does not measure ROI; a shorter payback does not guarantee higher profitability. BCR is the relevant metric.
- ✗
Both proposals are equal; select based on non-financial criteria
Why it's wrong here
This is incorrect because the proposals are not equal; Proposal B has a higher BCR (1.5 vs 1.2), making it financially superior.
- ✓
Proposal B, because it has a higher benefit-cost ratio
Why this is correct
This is correct because Proposal B has a higher benefit-cost ratio, which directly indicates a greater return on investment per unit cost, aligning with the goal to maximize ROI.
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