CAPM Business Analysis Frameworks Practice Question
A project team is evaluating a proposed solution that reduces operating costs by $200,000 annually but requires an initial investment of $800,000. The project lifespan is 5 years and the discount rate is 8%. What is the net present value (NPV) of this solution? (Assume annual cost savings occur at year-end.)
⚠ Common exam trap
The trap is forgetting to discount future cash flows — candidates who simply multiply $200,000 × 5 and subtract $800,000 get $200,000 and pick the wrong answer, ignoring the time value of money.
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
✓
-$1,458
NPV is calculated by discounting each year's $200,000 savings at 8% over 5 years and subtracting the $800,000 initial investment. The present value annuity factor for 8% over 5 years is approximately 3.9927, giving PV of savings ≈ $798,542. Subtracting the $800,000 investment yields NPV ≈ -$1,458, so the project destroys value at this discount rate.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✗
$20,000
Why it's wrong here
This value appears to come from subtracting the $800,000 investment from a rounded or miscalculated five-year total, rather than discounting each $200,000 receipt at 8%. It would be defensible only if the discount rate were zero. Correct NPV discounts each year-end saving individually, giving approximately -$1,000.
- ✗
-$20,000
Why it's wrong here
A negative NPV of $20,000 misapplies the discount factors; the $200,000 annual savings over five years at 8% yields a present value near $798,542, giving roughly -$1,458. It is tempting because it looks close to break-even, but the correct figure reflects precise discounting.
- ✓
-$1,458
Why this is correct
Discounting $200,000 annually at 8% over five years gives a present value of approximately $798,542. Subtracting the $800,000 initial investment yields an NPV of about -$1,458, confirming the solution destroys value at this discount rate.
- ✗
$200,000
Why it's wrong here
This figure equals the undiscounted annual saving, ignoring both the $800,000 outlay and discounting entirely. It resembles a simple payback-style figure, which would be relevant if the question asked for annual cash flow rather than NPV. NPV requires discounting each year's $200,000 at 8% and subtracting the 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.