Need your inputs

Based on the information provided below, which project would you recommend for being pursued?

Project I, with BCR (Benefit Cost ratio) of 1:1.6;
Project II, with NPV of US $ 500,000;
Project III, with IRR (Internal rate of return) of 15%
Project IV, with opportunity cost of US $ 500,000.

A. Project I
B. Project III
C. Either Project II or IV
D. Can not say from the data provided

I thought the answer to be D, but the test mentions C. Please let me know your opinion.

Neha, the answer is C indeed. Initially, I had thought the answer to be A. The answer is C. How long have you been preparing for PMP? I am looking for a study partner actually. My email id is krantikumar50@in.com.... Thanks, KK

The answer is B because it's the only one that makes sense. A is wrong, that's is a negatice NPV, C is wrong because project 4 doesn't tell you anything about how much it's worth at all, and D is wrong because we know at least projects 2 and 3 are profitable, so we have two "decent" choices even if we don't know that much about them.

 

Project 1 cost's 1.6 times as much as it's benefit (loses money)

Project 2 has an NPV that's promising, but over what term? A few months or 10 years?

Project 3 you know will be worth 15% of the cost and that's pretty good no matter the term, the longer the term the greater the cost so the greater the profit...15% is 15% no matter what.

Project 4 only tells you what you gave up to take this opportunity and has nothing to do with how much it's worth.

With the data given , best answer is "B". 

From which resource is this question? tsk tsk tsk tsk!!  avoid visiting resouces or website with such a wrong answer to questions, as this will increase your chance of failing the actual exam. this kind of practice test tortures one's mind. he he

Those who answered B - you are all correct guys. The explanation is well-elaborated by scot.

The question is from Rita and the answer as per Rita is C... Thanks, KK

I have copy of Rita and does not have such a question kranti.
 

Sir, you might want to refer to Rita's Fast Track. It is not available in her book though. KK....

i am refering to fastrack kk. i search by keyword and never found such a question. give me the ID of that question in fastrack then.

Sir, am outside. Will go back home, log in and the first thing I do is that I give you the id number. It is in PIM knowledge area. There are more than 200 questions. Will have to find it from scratch. Will give in the evening. I am on a BB, which is most of the times. Thanks, KK...

Let's look at the four projects again:

--> Project I has a B/C Ratio < 1, so 'ideally' it should not be considered(unless it has any overwhelming strategic / soft benefits involved)

---> Project II and IV provide the same 'hard benefits' since the NPV of II = the oppty cost of IV

---> Project III has an IRR of 15%

Now let's look at the options:

A. Whether I provides any soft benefits to outdo its own < 1 B/C ratio and/or the hard benefits of II, III and IV is difficult to infer since the given data isn't sufficient to perform a comparative analysis.

B. Project III has a healthy IRR of 15%, but we're unsure of the duration of the project. So effectively, we're not sure for 'how long' would it keep on 'paying' us back 15% in terms of benefits. Thus, we do not know what's the 'net gain' or present value of executing it [NPV = FV / (1+r)^n]. So data isn't sufficient to select(or reject) it over II and/or IV.

C. II and IV 'return' us back $500k USD. But to compare it with III's hard benefits, we need to calculate its IRR(you cannot compare apples with oranges, can you?). But to calculate its IRR, we need to know its duration [since NPV = FV / (1+r)^n]. And that's exactly what we don't know. So given data is insufficient to select / reject these over III too.

D. This option captures the situation best. We just don't have enough data to select / reject any one project over the other three. So this should be the correct choice(regardless of whatever Rita Mulcahy might think).

Thanks!

Thanks for a detailed lay out but what is the answer then?

As I've said, "D" should be the correct choice.

Neha,


 


Where are you? Could you please let us know the reasoning behind the explanation? I am now not getting it on FastTrack as well :(


Where did you get this question from?


 


Thanks,


 


KK...

Thanks Scot for the explanation. I read about IRR calculations and got a better understanding. This question was not from Rita. I saw this yesterday while taking some free online tests.

Answer suggested by them is B

Reason:

Option

A Every body knows this is not profitable.

B  It is assuring 15% profit.

C This is giving net present value , and it is an amount, for future  no comments and opportunity cost is also an present cost not assured profit.

D In II and IV data is insufficient, but you have to reccommend any one which is obvious.

Hence  Answer is B

 

other trick

 

option A is wrong

B have only one

C have 2, but have to reccomend only 1.

D have none

hence B is correct

Regards

 

 

 

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http://www.bestsamplequestions.com/pmp-sample-questions/pmp-sample-questions-12.html

Q 122

Based on the information provided below, which project would you recommend pursuing?

Project I, with BCR (Benefit Cost ratio) of 1:1.6;
Project II, with NPV of US $ 500,000;
Project III, with IRR (Internal rate of return) of 15% 
Project IV, with opportunity cost of US $ 500,000.
 

 

  1. Project I
  2. Project III
  3. Either project II or IV
  4. Can not say from the data provided

Answer: B

Explanation: Project III has an IRR of 15%, which means the revenues from the project equal the cost expended at an interest rate of 15%.
This is a definitive and a favorable parameter, and hence can be recommended for selection.

Project I have an unfavorable BCR and hence cannot be recommended.

Information provided on projects II and IV is not definitive, and hence neither of projects II and IV qualifies for a positive recommendation

here some more such sites but just copied:

http://certification.about.com/od/projectmanagement/a/pmp_a1_whiz.htm

http://pmp-tutorial-free-sample-questions.blogspot.in/2010/12/sample-questions-of-pmp.html

 

So instead of chosing option 'D', we'll ignore II and IV because we don't have enough info about it. That's awesome logic I must say.

Actually reminds one of the Chinese way of life: "Since we don't know any language other than Mandarin, it must be the easiest one!" :-)