Free PMP® Exam Sample Question

Free PMP® Exam Sample QuestionA project manager is developing a cost management plan and needs to determine the best source of funding for a project that is dictated by a legal requirement. The cost of capital is estimated at 9.7% for non-dividend paying equity, 6.7% for debt, and 5.1% for self-funding. The NPV of the project is $500,000 with an opportunity cost of $750,000. What is the project manager's best course of action?

A. Fund the project with equity since there are no dividend obligations
B. Select the self-funding option since it provides the lowest cost of capital
C. Perform an alternatives analysis since there are multiple factors to consider
D. Recommend the termination of the project since another project has a higher NPV

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HINT: What tool or technique associated with the Plan Cost Management process might be helpful in this situation?
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All our questions are updated to the latest A Guide to the Project Management Body of Knowledge (PMBOK® Guide) standard. Stop by at http://free.pm-exam-simulator.com/ and try the PM Exam Simulator free for 7 days. We are a Project Management Institute (PMI)® Registered Education Provider.

Answer and Explanation:
The correct answer is C.

The question states that the project manager is developing the cost management plan, which indicates that the Plan Cost Management process is being performed. A data analysis technique that can be used for this process includes an alternatives analysis, which is a technique used to evaluate identified options in order to select the options or approaches to use to execute and perform the work of the project. In this case, an alternatives analysis can consist of reviewing funding options such as self-funding, funding with equity, or funding with debt. Even though the question provides some financial data, there are other factors which should be taken into consideration before selecting the appropriate source of funding. Therefore, of the available options, the best course of action for the project manager is to perform an alternatives analysis.

Details for each option:

A. Fund the project with equity since there are no dividend obligations
Incorrect. Dividend payments are only one aspect of the cost of capital for equity. The estimated cost of capital for equity is provided by the question at 9.7%. Equity may or may not be the best source of funding, and the project manager should first perform data analysis to make that determination.

B. Select the self-funding option since it provides the lowest cost of capital
Incorrect. The self-funding option does provide the lowest cost of capital, and this is one factor for consideration in the selection of the funding source(s). However, the cost of capital is not the only factor that should be considered. Does the company have the capital available? If so, what will be the impact of lowering the company's cash reserves? Even though the self-funding option is the least expensive option, it may not be the best source of funding. The project manager, likely in collaboration with the finance department, will first need to perform data analysis in order to select the best source of funding.

C. Perform an alternatives analysis since there are multiple factors to consider
Correct. Alternatives analysis can consist of reviewing funding options such as self-funding, funding with equity, or funding with debt. Even though the question provides some financial data, there are other factors which should be taken into consideration before selecting the appropriate source of funding.

D. Recommend the termination of the project since another project has a higher NPV
Incorrect. The question states the project has a net present value (NPV) of $500,000 with an opportunity cost of $750,000. Opportunity cost represents the value of the opportunity not selected. The project with the greater NPV of $750,000 would be more profitable for the company. However, the question also states that the current project "is dictated by a legal requirement." Hence, regardless of the NPV, the project in the subject is not optional, and, therefore, recommending its termination is unlikely to be the best course of action.

Reference: A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page(s) 34, 78, 238

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Free CAPM® Exam Sample Question

Free CAPM® Exam Sample QuestionAll of the following processes fall under the Executing Process Group except:

A. Direct and Manage Project Work
B. Manage Quality
C. Perform Integrated Change Control
D. Manage Team

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HINT: Think of what is done in each process, which should help you identify the process that is not part of the Executing Process Group.
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All our questions are updated to the latest A Guide to the Project Management Body of Knowledge (PMBOK® Guide) standard. Stop by at http://free.pm-exam-simulator.com/ and try the PM Exam Simulator free for 7 days. We are a Project Management Institute (PMI)® Registered Education Provider.

Answer and Explanation:
The correct answer is C.

The Executing Process Group includes processes that are performed to complete the work required to meet the project requirements, while Perform Integrated Change Control process focuses on managing changes to the project, which is performed as a part of the Monitoring and Controlling Process Group.

Details for each option:

A. Direct and Manage Project Work
Incorrect. Direct and Manage Project Work is a process of the Executing Process Group, where the project team performs the work defined in the project plan and carry out approved changes.

B. Manage Quality
Incorrect. Manage Quality, sometimes called quality assurance, is a process of auditing the project to ensure the quality standards are used. This process is under the Executing Process Group.

C. Perform Integrated Change Control
Correct. Perform Integrated Change Control is a process under the Monitoring and Controlling Process Group of reviewing, approving, and managing changes to the project.

D. Manage Team
Incorrect. Manage Team is part of the Executing Process Group, which includes tracking team member performance, manage changes and issues to optimize the project performance.

Reference: A Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Sixth Edition, Project Management Institute Inc., 2017, Page(s) 25

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