2. A 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, and the opportunity
cost is $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
HINT: What tool or technique associated with the Plan Cost Management process might be helpful in this
situation?
Question
3. 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, among the available options, the best course of action for the project manager is to perform an
alternatives analysis.
Answer
4. All our questions are updated to the latest
A Guide to the Project Management Body of Knowledge
(PMBOK® Guide) standard.
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