Oliver F. Lehmann is one of the well known project management trainers. Being a trainer since 1995, he primarily focusses on PMP certification preparation. His 75 free sample questions (PMP® Exam Self-Assessment Test) is very popular. If you have not tried the test yet, please STOP reading this article.

He has given the answers and relevant references for all the 75 questions. He has not given any answer explanations, probably to encourage candidates to research themselves. I do encourage you to think and do a research before reading further on.

Question No. 2 from Oliver Lehmann PMP Exam Self Assessment Test

I took question #2 from the sample test to solve here. Read further only if you have failed to solve yourself and really need a guidance.

Source: http://www.oliverlehmann.com/pmp-self-test/75-free-questions.htm

Answer Key for Oliver Lehmann PMP Exam Question No. 2

There are two projects in the question. We need to choose the project with a better returns based on the Net Present Value (NPV). The below table shows the given data.

Project #	Duration	Cost	Returns
1	9 months	$250,000	$120,000/ year
2	9 months	$250,000	1st year: $15,000 2nd year: $125,000 3rd year: $220,000

Since the cost and duration are the same for both projects, let us ignore those data; we will look into the returns/ benefits of the project only to compare.

Net Present Value (NPV) = FV/(1+r)^t, where
FV = Future Value
r = rate of interest
t = time period

So, the NPV of project 1 considering first three years
= 120000 / 1.05 + 120000 / 1.05² + 120000 / 1.05³
= $326790

NPV of project 2 considering first three years
= 15000 / 1.05 + 125000 / 1.05² + 220000 / 1.05³
= $317709

Comparing the two values, project #1 is better. By, what percentage?
= (326790-317709) / 317709
= 0.029
= 2.90% (approximately 3%)

So, the first project is more attractive by approximately 3%.

Conclusion

Hope the above explanation helps. If you need any further information/ help regarding this question, please leave a comment below.