The correct conclusion is that the project is financially viable. This is because the Net Present Value (NPV) is positive at $50,000, meaning the project’s expected cash inflows, discounted back to today, exceed its outflows, directly adding value. Additionally, the Internal Rate of Return (IRR) of 12% surpasses the company’s required rate of return of 10%, confirming the project yields a return above the cost of capital. On the CAPM exam, this question tests your ability to interpret cost-benefit analysis results from the business case—a key part of project selection and charter approval. A common trap is to think only one metric matters, but both NPV and IRR must independently signal viability. Remember the memory tip: “Positive NPV and IRR above the hurdle rate means the project is great.”
CAPM Practice Question: Project Management Fundamentals and Core Concepts
This CAPM practice question tests your understanding of project management fundamentals and core concepts. 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 project manager is reviewing the project charter and notices that the business case includes a cost-benefit analysis with a Net Present Value (NPV) of $50,000 and an Internal Rate of Return (IRR) of 12%. The company's required rate of return is 10%. What should the project manager conclude about this project?
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
The project is financially viable.
The project is financially viable because the NPV is positive ($50,000), indicating that the present value of expected cash inflows exceeds the present value of cash outflows. Additionally, the IRR of 12% exceeds the company's required rate of return (10%), meaning the project's expected return is greater than the cost of capital. Both metrics independently confirm financial feasibility.
Key principle: Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
Read the scenario before looking for a memorised answer.
✗
The project's payback period is acceptable.
Why it's wrong here
Payback period is not provided; NPV and IRR indicate viability.
✗
The project is expected to break even.
Why it's wrong here
A positive NPV indicates profit, not break-even.
✗
The project is not financially viable.
Why it's wrong here
The IRR exceeds the required rate of return, indicating viability.
Common exam traps
Common exam trap: answer the scenario, not the keyword
PMI often tests the misconception that a positive NPV alone is sufficient without considering the IRR relative to the required rate, or that a higher IRR always means a better project, ignoring scale and cash flow timing.
Detailed technical explanation
How to think about this question
NPV calculates the difference between the present value of cash inflows and outflows using the company's required rate of return (discount rate). IRR is the discount rate that makes NPV equal to zero; when IRR > required rate, the project adds value. In practice, if multiple projects are competing, the one with the highest positive NPV is preferred, but IRR can be misleading for non-conventional cash flows (e.g., alternating signs).
KKey Concepts to Remember
Read the scenario before looking for a memorised answer.
Find the constraint that changes the correct option.
Eliminate answers that are true in general but not in this case.
TExam Day Tips
→Watch for words such as best, first, most likely and least administrative effort.
→Review why wrong options are wrong, not only why the correct option is correct.
Key takeaway
Answer the scenario, not the keyword: identify the specific constraint before choosing the most familiar-sounding option.
Real-world example
How this comes up in practice
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
Got this wrong? Here's your next step.
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
Project Management Fundamentals and Core Concepts — This question tests Project Management Fundamentals and Core Concepts — Read the scenario before looking for a memorised answer..
What is the correct answer to this question?
The correct answer is: The project is financially viable. — The project is financially viable because the NPV is positive ($50,000), indicating that the present value of expected cash inflows exceeds the present value of cash outflows. Additionally, the IRR of 12% exceeds the company's required rate of return (10%), meaning the project's expected return is greater than the cost of capital. Both metrics independently confirm financial feasibility.
What should I do if I get this CAPM question wrong?
Identify which exam domain this question belongs to, review the core concept, then practise similar questions from the same domain.
What is the key concept behind this question?
Read the scenario before looking for a memorised answer.
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Question Discussion
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