PMI Agile Certified Practitioner (ACP) Practice Exam

What does NPV stand for in project management?

1. Net Project Value

2. Net Present Value

3. Net Performance Variance

4. Net Priority Value

The correct answer is: Net Present Value

The correct answer is Net Present Value, which is a fundamental concept in project management and finance. NPV is used to assess the profitability of an investment or project by calculating the difference between the present value of cash inflows and the present value of cash outflows over a specific period. It takes into account the time value of money, which is crucial because it acknowledges that a dollar today is worth more than a dollar in the future due to its potential earning capacity. By using NPV, project managers can make informed decisions about whether to proceed with a project based on its expected financial return. A positive NPV indicates that the projected earnings (in present dollars) exceed the anticipated costs (in present dollars), suggesting that the project should be considered further or approved. Conversely, a negative NPV suggests that the costs outweigh the benefits, signaling that it may be wise to reconsider the investment. Understanding NPV helps project managers evaluate a variety of projects under consideration and prioritize them based on their potential to add value to the organization. In this light, the other options do not accurately define NPV in the context of financial evaluation in project management.