NCRD's Sterling Institute of Management Studies,

Nerul, Navi Mumbai

Multiple Choice Questions (MCQ) on Project Management

1-A ____ is a set of activities which are networked in an order and aimed towards achieving the
goals of a project.

(A) Project
(B) Project management
(C) Project cycle
 
2-Resources refers to
(A) Manpower
(B) Machinery
(C) All of the above
 
3-Developing a technology is an example of
(A) Process
(B) Project
(C) Scope
 
4-The project life cycle consists of
(A) Understanding the scope of the project
(B) Formulation and planning various activities
(C) All of the above
 
5-Following is(are) the responsibility(ies) of the project manager.

(A) Budgeting and cost control

(B) Allocating resources
(C) Tracking project expenditure
 
6-Following are the phases of Project Management Life Cycle. Arrange them in correct order
Design, 2. Marketing, 3. Analysis and evaluation, 4. Inspection, testing and delivery

(A) 3-2-1-4
(B) 1-2-3-4
(C) 2-3-1-4
 
7-Design phase consist of

(A) Input received

(B) Output received
(C) Both (A) and (B)
 
8-Project performance consists of
(A) Time
(B) Cost
(C) All of the above
 
9-Five dimensions that must be managed on a project
(A) Constraint, Quality, Cost, Schedule, Staff
(B) Features, Quality, Cost, Schedule, Staff
(C) Features, priority, Cost, Schedule, Staff
 
10-Resorce requirement in project becomes constant while the project is in its _____ progress
stage.
(A) 40 to 55%
(B) 70 to 80%
(C) 80 to 95%

11-The probability of completing the project can be estimated based upon the ____ .
(A) Uniform distribution curve
(B) Normal distribution curve.
(C) U-shaped distribution curve
 
12-In the initial stage of the project the probability of completing the project is ___ .
(A) Zero
(B) High
(C) Low
 
13-The entire process of a project may be considered to be made up on number of sub process
placed in different stage called the
(A) Technical key resources
(B) Work key structure
(C) Work Breakdown Structure (WBS).
 
14-Tool used for comparison of the proposed project to complete projects of a similar nature
whose costs are known.
(A) Algorithmic model
(B) Top down
(C) Analogy
 
15-Each component of the software product is separately estimated and the results aggregated to
produce an estimate for the overall job.
(A) Algorithmic model
(B) Expert judgment
(C) Bottom-up
 
16-Following is (are) the component(s) of risk management
(A) Risk Assessment
(B) Risk Control
(C) All of the above
 
17-Following are the characteristics of Project Mindset.
(A) Time, Responsiveness, Information sharing, Processes, structured planning
(B) Time, Project management, Information sharing, Processes, structured planning
(C) Time, Responsiveness, Information sharing, capability, structured planning
 
18-“Devising and maintaining a workable scheme to accomplish the business need” is
(A) Initiating process
(B) Planning process
(C) Executing process
 
19-Controlling the changes in the project may affect
(A) The progress of the project
(B) Project scope
(C) All of the above
 
20-Following is (are) the tool(s) for changing a process
(A) Change Management System (CMS)
(B) Configuration Management (CM)
(C) Both (A) and (B)

21.  Assembling project team and assigning their responsibilities are done during which phase of a
project management?
(A) Initiation
(B) Planning
(C) Execution

22. The basic nature of a project is a/an _____ one.

(A) permanent
(B) temporary
(C) Both (A) and (B)

23. A process that involves continuously improving and detailing a plan as more detail become
available is termed as
(A) project analysis
(B) progressive deliberation
(C) progressive elaboration
24. A program is usually a group of
(A) plans
(B) people and work
(C) related projects
(D) unrelated projects

25. Which from the following statement(s) is/are NOT true?

I. Projects have defined objectives
II. Programs have a larger scope than projects
III. The projects and programs in a portfolio must be directly related
(A) I only
(B) II only
(C) III only

26.  Projects management is divided in _____ process groups.

(A) 5
(B) 7
(C) 9

27.  If any one factor of a project changes, _____ other factor(s) is/are likely to be affected.
(A) all
(B) one
(C) at least one

28. Business Value =
(A) Tangible Elements
(B) Intangible Elements
(C) Tangible Elements + Intangible Elements

29. Which from the following is NOT a tangible element?

(A) Trademarks
(B) Monetary assets
(C) Stockholder equity
30. Which from the following is NOT an intangible element?
(A) Utility
(B) Public benefit
(C) Brand recognition

31. Which from the following represents the correct project cycle?

(A) Planning→Executing→Initiating→Closing
(B) Initiating→Planning→Executing→Closing
(C) Initiating→Executing→Planning→Closing

32. The strategy used to correct resource over-allocations by balancing demand for resources and
the available supply is known as
(A) resource assignment
(B) resource leveling
(C) resource splitting

33. A horizontal bar chart that shows project tasks against a calendar is called
(A) milestone
(B) Gantt chart
(D) PERT chart

34. The statistical tool that depicts a project’s tasks and the relationships between those tasks is
known as
(A) milestone
(B) Gantt chart
(C) PERT chart

35. Which of the following statement(s) is/are true about a Project?

I. It brings change
II. It has risk
III. The outcome is certain
(A) I only
(B) II only
(C) I and II only
36 Which of the following is NOT a part of project management?
(A) initiating
(B) monitoring
(C) All above are parts

37. The scope of the work is defined in which phase of the project management?
(A) Initiating
(B) Executing
(C) Closing

38. How the project work will be carried out, monitored, and controlled? These questions are
answered in which phase of the project management?
(A) Initiating
(B) Planning
(C) Closing

39. The review of the successes and the mistakes is normally held during _____ phase.
(A) initiation
(B) execution
(C) closure

40. The business case and the justification for the project is determined during the _____ phase.
(A) initiation
(B) execution
(C) closure

41. According to Olivier Mesly, the 4 P’s critical for the success of a project are:
(A) plan, processes, people, policy
(B) plan, processes, people, power
(C) plan, processes, potential, policy

42. A communication management plan identifies the relevant information that should be
communicated to:

A. the project team.

B. the project stakeholders.
C. the project board.
43. Which one of the following statements is true?

A. Independent reviews and quality audits form part of quality assurance to ensure the project
manager delivers on time and to budget.
B. Quality assurance provides confidence to stakeholders that requirements for quality will be
exceeded.
C. Quality control verifies that the project deliverables conform to specification, are fit for
purpose and meet stakeholder expectations.

44. Project risk management is best described as:

A. Managing responses to threats.

B. Identifying and acknowledging threats and opportunities.
C. Minimising threats and maximising opportunities.

45. Which one of the following best describes a project issue?

A. A major problem that requires formal escalation.
B. A problem that the project manager has to deal with on a day-to-day basis.
C. An uncertain event that may or may not occur.

46. Scheduling can best be defined as the process used to determine:

A. overall project duration.
B. project cost estimating.
C. the project management plan.

47. Which one of the following statements is true?

A. An increase in project scope is likely to increase project cost.
B. A decrease in the project time is likely to increase project quality.
C. An increase in the project quality requirements is likely to decrease project cost.

48. Which one of the following statements best defines the purpose of a Product Breakdown
Structure (PBS)?
A. To define the hierarchy of deliverables that are required to be produced on the project.
B. To establish the extent of work required prior to project commissioning and the handover.
C. To identify the health and safety strategies and procedures to be used on the project.

49. Which one of the following is least likely to be a success criteria?

A. A target for the project to receive zero change requests.
B. Delivery of products that meet required specifications.
 C. The awarding of bonuses to senior management.

50. Which one of the following is a valid project Key Performance Indicator (KPI)?

A. Staff appraisals.
B. Management buy in.
C. Milestone achievement.

51. Which one of the following statements is true?

A. The business case is owned by the sponsor and is created during the concept phase of the project
life cycle.
B. The business case is owned by the project manager and is created during the concept phase of
the project life cycle.
C. The business case is owned by the sponsor and is created during definition phase of the project
life cycle.

52. Who owns the Project Management Plan (PMP)?

A. The project team.
B. The chief executive.
C. The project manager.

53. Which one of the following best describes users?

A. Providers of both strategic and tactical direction to the project.
B. Those intended to receive benefits or operate outputs.
C. Facilitators of an appropriate issue resolution procedure.

54. Which statement best describes a responsibility of the project manager:

A. to be the sole source of expertise for estimating techniques on cost and time.
B. to deliver the project objectives to enable benefits to be realised.
C. to take ultimate accountability for the delivery of the business benefits.

55. A project is typically defined in terms of scope, time, cost and which other parameter?

A. Benefits.
B. Quality.
C. Tolerance.

56. Which one of the following statements is true?

 A. Business-as-usual activities cannot be improved.
B. Business-as-usual activities are more difficult to manage than projects.
C. Projects are transient endeavours that bring about change to business-as-usual.
D. A project is always the starting point for operation refinement.

57. What is defined as “the ability to influence and align others towards a common purpose”?
A. Teamwork.
B. Management.
C. Leadership.

58. Which one is a true statement relating to project communications?

A. A project sponsor is responsible for all communication methods and media.
B. Different stakeholders typically have different communication needs.
C. Email is the only way to communicate with large numbers of people.

59. In project management, the term quality is best defined as:

A. inspection, testing and measurement.
B. reviews and audits.
C. fitness for purpose of deliverables.

60. The main outcome of risk identification, in a risk management process, is to:
A. identify and determine the relative importance of the project risks.
B. identify and describe all risks that might occur on the project.
C. identify and determine the responses to the project risks.

61. Which one of the following is not considered in resource management?

A. Identifying resources.
B. Influencing resources.
C. Assigning resources to activities.

62. Which one of the following does project change control primarily seek to ensure?

A. All variance to the project scope is evaluated.

B. No reduction in the perceived quality of the project outcome.
C. Management costs of the project do not increase.

63. Which one of the following is captured in the Work Breakdown Structure (WBS)?
A. The life cycle phases.
B. The logical order of tasks.
C. The scope of the project.
64. Project reporting can best be defined as:

A. informing stakeholders about the project.

B. storing and archiving of project information.
C. gathering stakeholder feedback.

65. Which one of the following statements best defines an estimate?

A. An approximation of project time and cost targets, refined throughout the project life cycle.
B. A prediction of a future condition or event based on information or knowledge available
now.
C. A situation that affects or influences the outcome of the project expressed in time or cost
terms.

66. The justification for the investment to be made in a project is documented in the:

A. Cost Breakdown Structure.

B. Business case.
C. Project Management Plan.

67. Which one of the following is a responsibility of the project steering group/board?
A. To identify potential problems for the project team to solve.
B. To provide strategic direction and guidance to the sponsor.
C. To manage the project team in all daily activities.

68. One of the reasons a project life cycle is split into phases is to:
A. facilitate formal go/no-go decision making during the project.
B. balance the costs of work in each phase of project development.
C. mirror the major deployments of resources throughout the project.

69. Which of the following best describes a project environment?

A. The type of organisation concerned with implementation.
B. The context within which a project is undertaken.
C. An understanding of the risks involved in the project.

70. Which one of the following statements best describes a project?

A. A project is a set of tools and techniques often used when delivering organisational change.
B. A project is the sum of activities needed to remove uncertainty from a unique piece of
 work.
C. A unique transient endeavour undertaken to achieve a desired outcome.

71. The document that identifies what information needs to be shared, to whom, why, when and
how is called the:
A. communication management plan.
B. stakeholder mapping grid.
C. document distribution schedule.

72. An important aim of a post-project review is to:

A. validate overall progress to date against the budget and schedule.
B. capture learning and document it for future usage.
C. ensure acceptance of all permanent documentation, signed by the sponsor.

73. The process that evaluates overall project performance to provide confidence is called:
A. quality assurance.
B. quality planning.
C. quality control.

74. Which one of the following statements about the project risk register is false?
A. It facilitates the review and monitoring of risks.
B. It facilitates the risk appetite.
C. It facilitates the recording of risk responses.

75. Which one of the following statements best defines procurement?

A. A technique to establish the best approach for obtaining the resources for the project.
B. A group of interrelated resources and activities that transform inputs into outputs.
C. The process by which products and services required for the project are acquired.

76. Once a change has been requested what is the next step in the change control process?
A. Evaluate the change.
B. Advise the sponsor.
C. Update the change log.

77. A Responsibility Assignment Matrix (RAM) can be used to:

A. define the terms of reference of the project manager.
B. allocate risk management response activities to project personnel.
C. allocate work packages to those responsible for project work.

78. An Organisational Breakdown Structure (OBS) is used to identify:

A. the reporting structure and current availability of all individuals in the project.
 B. technical ability and line of communication for all individuals in the project.
C. lines of communication and responsibility for all the individual managers in the project.
D. the reporting structure and lines of communication for all individuals in the projects.

79. Which one of the following best describes project success criteria?
A. Actively seeking some senior management support.
B. Measures by which the success of the project is judged.
C. A motivated project team.

80. Comparative estimating uses:

A. current data from similar projects.

B. historic data from all projects.
C. historic data from similar projects.

81. Which one of the following best describes a project stakeholder?

A. A party who is concerned about the project going ahead.
B. A party with an interest or role in the project or is impacted by the project.
C. A party who has a financial stake in the organisation managing the project.

82. The main purpose of the Project Management Plan is to:

A. provide justification for undertaking the project in terms of evaluating the benefit, cost and
risk of alternative options.
B. ensure the project sponsor has tight control of the project manager’s activity.
C. document the outcomes of the planning process and provide the reference document for
managing the project.

83. Who has ultimate responsibility for project risk?

A. Steering group.
B. Project sponsor.
C. Project manager.

84. When a project has completed the handover and closure phase:
A. the project deliverables are ready for commissioning.
B. the project deliverables are ready for handing over to the users.
C. the capability is now in place for the benefits to be realised.

85. Which one of the following illustrates why effective project management is beneficial to an
organisation?
A. It utilises resources as and when required under direction of a project manager.
B. It advocates employing a consultancy firm which specialises in managing change.
 C. It recommends using only highly skilled people in the project team.

86. A key aspect of managing a project involves:

A. defining which operational systems to put in place.
B. identifying routine tasks.
C. planning to achieve defined objectives.

87. Which one of the following statements best defines teamwork?

A. People working collaboratively towards a common goal.
B. Developing skills that will enhance project performance.
C. Establishing vision and direction towards a common purpose.

88. A review undertaken to decide whether a project should proceed into its next phase is known as
a:
A. gate review.
B. feasibility study.
C. milestone review.

89. Which one of the following statements best describes the use of an issue log?
A. A summary of all possible alternative resolutions of an issue.
B. A summary of all the project issues, their analysis and status.
C. A tool to ensure that a process is in place for capturing all issues.

90. The main aim of a project risk management process should be to:
A. identify project risks and then manage them appropriately.
B. identify all project risks and transfer them immediately.
C. identify all the things that are threats or opportunities on a project.

91. What is a visual representation of a project’s planned activities against a calendar called?
A. A Gantt chart.
B. A critical path network.
C. A product flow diagram.

92. Configuration management is best described as:

A. control in the implementation of changes to project schedules.
B. an organisation to review proposed changes to the project deliverables.
C. creation, maintenance and controlled change of the project deliverables.

93. A Cost Breakdown Structure (CBS) shows costs assigned to:

A. individual work packages using the Work Breakdown Structure (WBS).
 B. individual resources using the Work Breakdown Structure (WBS).
C. individual resources using the Responsibility Assignment Matrix (RAM).

94. The accuracy of an estimate should:

A. decrease as a project progresses through its life cycle.
B. increase as a project progresses through its life cycle.
C. stay constant throughout the project life cycle.

95. Which one of the following best defines a benefit?

A. The successful management of a project.
B. An improvement resulting from project deliverables.
C. The successful delivery of project reports and updates.

96. Which one of the following is true for the Project Management Plan (PMP)?
A. A draft of the Project Management Plan is developed by the sponsor at the same time as the
business case.
B. The Project Management Plan is developed by the sponsor and owned by the project
manager.
C. The Project Management Plan is developed by the project manager and team and owned by the
project manager.

97. Who are project team members primarily accountable to?

A. External stakeholders.
B. The finance director.
C. The project manager.

98. The phases of a project life cycle are:

A. starting, planning, control and closing.

B. concept, definition, development, handover and closure.
C. initiation, definition, planning, monitoring and operations.

99. A portfolio can best be defined as:

A. a group of projects and programmes carried out within an organisation.
B. a group of programmes carried out under the sponsorship of an organisation.
C. a group of projects carried out under the sponsorship of an organisation.

100. Which one of the following best describes project management?

A. Employing a project manager who has undertaken similar projects.
B. Utilising team members who can work on a project full time.
C. Application of processes and methods throughout the project life cycle.
101. Which structure shows the reporting relationships and communications channels for a project?

A. Work Breakdown Structure.

B. Organisational Breakdown Structure.
C. Product Breakdown Structure.

102. Calculate the SV ( Schedule Variance) for a project having, PV is Rs 200000, EV is Rs

100000 and AV is Rs 150000 under the earned value management
a) 10,00,00
b) -10,00,00
c)-50000
Answer: Schedule Variance(SV) = EV-PV (100000-200000) = -100000
103. Under Earned Value Management , if PV is Rs 200000, EV is Rs 100000 and AV is Rs
150000 Compute the Cost Variance for the project .
a) 100000
b) -100000
c) -50000

Answe: Cost Variance(CV) = EV-AV (100000-150000) = -50000

104. Calculate four periods moving average forecast from the last six periods
Period Demand
1 38
2 40
3 42
4 40
5 44
6 38

1.40
2.41
3.42
4.43
Answer:
Year Dema Forec
s n as
 d t
1 38 -
2 40 -
3 42 -
4 40 -
5 44 40
6 38 41.5
7 41

7th Years = 42+40+44+38/4

106. If the actual demand for a period is 100 units but forecast demand was 90 units. The
forecast error is

1.-10
2.+10
3.-5
4.+5

Answer: Demand-Forecast = Error 100 units-90 units= 10 units (positive)

107. Calculate a weighted average forecast using a weight of 50 to the most recent period
40 for the next recent period and .30 for the next period

Period Demand
1 38
2 40
3 42
4 40
5 44
6 38

a. 46.6
b. 47.6
 c. 48.6
d. 49.6

108. The difference between the maximum time available and the actual time needed to
perform an activity is known as _________

a) Free float
b) Independent float
c) Total float
d) Half float

109. Cost Variance (CV) is which of the following equations?

1. CV = BCWP - BCWS
2. CV = BCWP - ACWP
3. CV = SV / BCWS
4. A and c

110. The BCWS = Rs 250, the ACWP = Rs 350, and the BCWP = Rs 200. Calculate the
Cost Variance.

1. -Rs150
2. Rs150
3. –Rs 50

Answer: Cost Variance= BCWP-ACWP (200-350)=-150

111) Activities A, B, and C are the immediate predecessors for Y activity. If the earliest finish
times for the three activities are 12, 15, and 10, then the earliest start time for Y will be
A) 10
B) 12
C) Cannot be determined
Answer: Earliest Finish Time (EF) = the earliest time that an activity can be completed. EF =
ES + duration of activity.
112) Activities P, Q and R instantly follow activity M, and their current start times are 12, 19, and
10. Therefore, the latest finish time for activity M is
A) 11
B) 10
C) Cannot be determined
Answer: Latest finish (LF): this is the latest time that an activity can be finished and not delay
the completion time of the overall project (= latest start time + activity completion time).

113) Completion of a CPM network diagram activity is commonly known

A. Connector
B. Node
C. All the above.
114) In bar charts, which colour is used to show the actual progress?
a) Red
b) Black
c) Green

115) Which of the following techniques does not contribute to increasing throughput at a
bottleneck?
a.increase capacity of constraint

b.bhave cross-trained employees available to operate the constraint

c.move inspections and tests to a position immediately after the bottleneck

116) If an activity with free slack time of 2 weeks is delayed by 1 week.

a) the project will be delayed by 1 week

b) no other activity in the project is affected
c) the probability of completing the project on time decrease

117) An activity has an optimisitc time of 15days, a most likely time of 18days, and a pessimistic
time of 27 days. What is its expected time ?

a) 19 days
b) 60days
c) 20days
118) An activity has an optimistic time of 11 days, a most likely time of 15 days, and a pessimistic
time of 23 days. What is its variance?

a) 4
b) 16.33
c) 2

119) Activities A and B are both 6 days long and the only immediate predecessors to activity C.
Activity A has ES=8 and LS=8 and activity B has ES=7 and LS=10. What is the ES of activity C?

a) 15
b) 14
c) 13

120) What is the probability that a project with a mean completion time of 23.9 days and a
variance of 6 days will be finished in 26 days?

A) 0.80
B) 0.20
C) 0.37

121) If demand is 106 during January, 120 in February, 134 in March, and 142 in April,
what is the 3-month simple moving average for May?

A) 132
B) 126
C) 142

122) Given last period's forecast of 65, and last period's demand of 62, what is the simple
exponential smoothing forecast with an alpha of 0.4 for the next period?

A) 65
B) 62
C) 63.2

Answer:
123) Susie's department is implementing many projects. She finds herself starting and stopping
work on one task to go and work on another task, and then return to the work on the original task.
Susie is experiencing

A) Poor scheduling
B) Flexible tasking
C) Multitasking

124) An uncertain event or condition that, if it occurs, has a positive or negative effect on a project
objectives is termed.

A) Random chance
B) A disaster
C) Risk

1. If ta, tm and tb are the optimistic time, most likely time and pessimistic time respectively in
PERT network then the expected value formulae is
A. (ta + 3tm + tb)/6
B. (ta + 4tm + tb)/6
C. (ta - 4tm + tb)/6

ANSWER B

Note: For Question # 2 to Question # 4 one should use data given which is as follows:
The tasks, their respective precedence and their respective times for a job which has these activities, are
given as follows
Task Time Precedence
A 5 None
B 7 None
C 3 A, B
 D 6 B, C
E 10 C, D

2. The time to complete the job is

A. 21
B. 24
C. 26
D. 27
(Ans.: C)
Answer:
Task Time Precedence ES EF LS LF Float 01 Float 02
A 5 - 0 5 2 7 2 2
B 7 - 0 7 0 7 0 0
C 3 A,B 7 10 7 10 0 0
D 6 B,C 10 16 10 16 0 0
E 10 C,D 16 26 16 26 0 0

3. The ES and EF for activity C is

A. ES = 0 and EF = 2
B. ES = 10 and EF = 13
 C. ES = 5 and EF = 8
D. ES = 7 &EF=10
(Ans.: D) Answer:
Task Time Precedence ES EF LS LF Float 01 Float 02
A 5 - 0 5 2 7 2 2
B 7 - 0 7 0 7 0 0
C 3 A,B 7 10 7 10 0 0
D 6 B,C 10 16 10 16 0 0
E 10 C,D 16 26 16 26 0 0

4. Float is available for activity/activities

A. Activities A and B
B. Activity A
C. Activity B
D. Activities C and
D (Ans.: B) Answer:
Task Time Precedence ES EF LS LF Float 01 Float 02
A 5 - 0 5 2 7 2 2
B 7 - 0 7 0 7 0 0
C 3 A,B 7 10 7 10 0 0
D 6 B,C 10 16 10 16 0 0
E 10 C,D 16 26 16 26 0 0

For the Project network shown, answer the Questions 5 and 6 based on the data
provided.
 A B E G J

D I

C F H K

Activity Expected Standard

time(weeks) deviation
A 3 0.3
B 2 0.5
C 8 2.0
D 1 0.2
E 6 1.0
F 4 0.2
G 5 0.4
H 1 0.1
I 3 3.0
J 5 1.0
K 6 0.6

5. What is the critical path?

A) A-B-E-H-K
B) A-B-E-G-J
C) C-D-E-G-I-K
D) C-D-E-G-
J (Ans.: C)
Explanation:
A-B-E-H-K = 18
A-B-E-G-J = 21
C-D-E-G-I-K = 29
C-D-E-G-J = 25
Hence C-D-E-G-I-K is the correct answer.

6. What is the probability of meeting a desired 26 weeks

completion time? A) 0.2159
B) 0.2060
C) 0.2476
 D) 0.1867 (Ans.: A)

Explanation: P(X<26) = P(Z<(26-29)/3.8158) = 0.2159.

X is normally distributed with mean = 29
Standard deviation = [22+.22+12+.42+32+.62]1/2 = 3.8158

7. An important assumption in PERT calculations is:

A. Activity times are normally distributed.
B. Activity times are independent.
C. A and B
D. A and C (Ans.: B)

8. Which is/are features of PERT/CPM?

A. An estimate of how long a project will take.
B. A graphical display of project activities.
C. An indication of critical activities.
D. All the above (Ans.: D)

9. In PERT, slack time equals

A. EST + t
B. LST - EST
C. Zero
D. EFT – EST (Ans.: B)

10. Which of the following is one of the assumptions of PERT?

A) Total project completion time follows a normal probability distribution.
B) Activity times are dependent and correlated.
C) Project completion time follows a skewed chi-square distribution.
Activity times are known with certainty. (Ans.: A)
 1. Mr. Banerjee purchased an asset for Rs.120,000. The following cash flow is generated by the asset:
Year Rs.

Year 1 15,000

Year 2 25,000

Year 3 40,000

Year 4 40,000

Year 5 35,000

Year 6 30,000

Using a discount rate of 20% the discounted payback period would be:
A. 6 years
B. 4 years
C. The investment does not pay back
D. 5
years (Ans.:
C)

Explanation: The discounted payback can be calculated in the following way:

Cumulative Cash Flow
Year Cash Flow (Rs.) Discount Factor Discounted Cash Flow
(Rs.) (Rs.)

0 (120,000) 1.000 (120,000) (120,000)

1 15,000 0.8333 12,495 (107,505)

2 25,000 0.694 17,350 (90,155)

3 40,000 0.579 23,160 (66,995)

4 40,000 0.482 19,280 (47,715)

5 35,000 0.402 14,070 (33,645)

6 30,000 0.322 9,660 (23,985)

Answer question 2 – 4 based on the information given below.

Table below shows the information related to a project that involves the merger of two marketing firms (in days).
 Activity Immediate Estimated Duration (days)
Predecessor(s)
A - 10

B - 15

C A 2

D B 12

E C, D 14

F B 8

G D, F 15

H E 10

I E, G 6

J F, I 9

2. What is the critical path?

A. Start-B-D-G-I-J-Finish
B. Start-A-C-E-I-J-Finish
C. Start-B-D-E-I-J-Finish
D. Start-A-C-E-H-
Finish (Ans.: A)

3. What is the project completion duration?

A. 58 days
B. 57 days
C. 55 days
D. 56
days (Ans.: B)

4. If there is an option to delay one activity without delaying the entire merge project, which
activity would you delay?
A. Activity A
B. Activity B
C. Activity A and Activity C
D. None of these
(Ans.: C)

Explanation: The project schedule is as follows:

Activity Earliest Start Latest Start Earliest Finish Latest Finish Slack

Start 0 0 0 0 0

A 0 13 10 23 13

B 0 0 15 15 0

C 10 23 15 28 13

D 15 15 27 27 0

E 27 28 41 42 1

F 15 19 23 27 4

G 27 27 42 42 0

H 41 47 51 57 6

I 42 42 48 48 0

J 48 48 57 57 0

Finish 57 57 57 57 0

The critical activities are: B-D-G-I-J

The project completion duration is 57 days.
Activity A or C since they have the largest slack times.
 5. NPTEL Ltd. is discussing with a local entrepreneur to start a project, which required an
initial investment of Rs. 300,000. The project starts and the cashflows during the
following years are as follows:
Rs.

Year 1 cash inflows 100

Year 2 cash inflows 150

Year 3 cash inflows 200

If a discount rate of 10% is used to calculate the NPV of the project, which of the following statements is
correct? (Assume the cash flows arise at the end of each year.)
(A) The project will yield a positive NPV of Rs.65.5k and have a payback period of 2
years and 3 months.
(B) The project will yield a positive NPV of Rs.65.5k and have a payback period of 2
years and 9 months.
(C) The project will yield a positive NPV of Rs.365.5k and have a payback period of 2
years and 3 months.
(D) The project will yield a positive NPV of Rs.365.5k and have a payback period of 2
years and 9 months.

(Ans.: A) Solution:

𝑁𝑃𝑉 = (100 × 0.91) + (150 × 0.83) + (200 × 0.75) − 300 = 65.5

𝑃𝑎𝑦𝑏𝑎𝑐𝑘 𝑝𝑒𝑟𝑖𝑜𝑑 = 2 𝑦𝑒𝑎𝑟𝑠 𝑝𝑙𝑢𝑠 (50/200) × 12 𝑚𝑜𝑛𝑡ℎ𝑠 = 2 𝑦𝑒𝑎𝑟𝑠 𝑎𝑛𝑑 3 𝑚𝑜𝑛𝑡ℎ𝑠

6. A project has the following cash flows:

Year 0 Rs. 10,500 initial investment

Year 1 Rs. 4,486 cash inflow

Year 2 Rs. 3,915 cash inflow

Year 3 Rs. 3,206 cash inflow

Year 4 Rs. 2,677 cash inflow

What is the internal rate of return of this project (approx.)?

 (A) 17%
(B) 11%
(C) 15%
(D) 13%
(Ans.: C)

If you are required to find a project's internal rate of return it is necessary to try different discount rates: one
that results in a net present value and one that results in a negative NPV. The two rates should be as close
together as possible. The actual internal rate of return can then be found by interpolation.

Discounted Discounted
Discount Discount
Year Cash Flow (Rs.) Cash Flow 11% Cash Flow 17%
(Rs.) (Rs.)
Factor 11% Factor 17%

0 (10, 500) 1.000 1000 (10, 500) (10, 500)

1 4,486 0.901 0.855 4,042 3,836

2 3,915 0.812 0.731 3,179 2,862

3 3,206 0.731 0.624 2,344 2,001

4 2,677 0.659 0.534 1,764 1,430

(829) (371)

829
By interpolation the IRR is 11% + (17% − 11%) ∗ ( ) = 11% + 6%(0.6908) =
(829+371)

11% + 4.1% = 15% 𝑎𝑝𝑝𝑟𝑜𝑥.

7. The yield of the project (y) is .
(A) the discount rate that makes the present value of the cash flows of the project equal
to the NPV of the project.
(B) the discount rate that makes the present value of the cash flows of the project equal
to the face value of the project.
(C) the discount rate that makes the present value of the cash flows of the project equal
to the discount price of the project.
(D) the discount rate that makes the present value of the cash flows of the project equal
to the market price of the project.

(Ans.: D)
 8. The par yield of the project (c)for a certain maturity is .
(A) the rate that causes the project to equal its NPV.
(B) the rate that causes the project price to equal its face value.
(C) the rate that causes the project to equal its discounted price.
(D) the rate that causes the project to equal its Market Price of the
project. (Ans.: B)

9. NPTEL Ltd. is considering two mutually exclusive projects. Project A has an internal rate
of return (IRR) of 12 percent, while Project B has an IRR of 14 percent. The two projects
have the same risk, and when the cost of capital is 7 percent the projects have the same
net present value (NPV). Assume each project has an initial cash outflow followed by a
series of inflows. Given this information, which of the following statements is most
correct?
(A) If the cost of capital is 13 percent, Project B's NPV will be higher than Project A's NPV.
(B) If the cost of capital is 9 percent, Project B's NPV will be higher than Project A's NPV.
(C) If the cost of capital is 9 percent, Project B's modified internal rate of return (MIRR)
will be less than its IRR.
(D) All of the statements above are
correct. (Ans.: D)

Statement (A) is true because at any point to the right of the crossover point B will have a higher
NPV than A. Statement (B) is true for the same reason that statement (A) is true; at any point
to the right of the crossover point, B will have a higher NPV than A. Statement (C) is true. If
B's cost of capital is 9 percent, the MIRR assumes reinvestment of the cash flows at 9
percent. When IRR is used, the IRR calculation assumes that cash flows are reinvested at the
IRR (which is higher than the cost of capital).
10. Tata Industry is considering a new project that develops a new iron pigment, PRISTINE.
The company has estimated that the project's NPV is Rs.3 million, but this does not
consider that the new pigment will reduce the revenues received on its existing pigment
products. Specifically, the
 company estimates that if it develops PRISTINE the company will lose Rs. 500,000 in after-
tax cash flows during each of the next 10 years because of the cannibalization of its
existing products. Tata Industry's WACC is 10 percent. What is the net present value
(NPV) of undertaking PRISTINE after considering externalities?

(A) Rs. 2,927,716.00

(B) Rs. 3,000,000.00
(C) Rs. (-72,283.55)
(D) Rs.
2,807,228.00 (Ans.:
C)

Step 1: Calculate the NPV of the negative externalities due to the cannibalization of existing projects:
𝐶𝐹0 = 0; 𝐶𝐹1−10 = −500000; 𝐼 = 10; 𝑁𝑃𝑉 = 𝑅𝑠. 3,072,283.55.

Step 2: Recalculate the new project's NPV after considering externalities:

+$3,000,000 − $3,072,283.55 = −$72,283.55.
 Answer Questions 01 to 05 based on the information given below:

You have joined a new MNC and you are made the manager of a Project which is shown below.
The details about the project are as follows:

 The indirect costs are Rs.8000 per week.

 Penalty cost of Rs.20,000 per week after week 65.

Assumption: Improvement gains is linearly associated to costs. For example, we can assume
activity F to complete in 10 weeks at a cost of Rs.10000, in 9 weeks at a cost of Rs.11500, in 8
weeks at a cost of Rs.13000, etc. We have to assume that we can decrease the activity time one
week, up to 4 weeks, for each Rs.1500 spent.

Activity Immediat Norma Normal Cras Cras Max Crash

e l Cost h h Cras Cost (Rs.)
Predecess Time (Rs.) Time Cost h per
or(s) (weeks) (weeks) (Rs.) Time week
A - 12 12000 11 13000 1 1000
B - 9 50000 7 64000 2 7000
C A 10 4000 5 7000 5 600
D B 10 16000 8 20000 2 2000
E B 24 120000 14 200000 10 8000
F A 10 10000 6 16000 4 1500
G C 35 500000 25 530000 10 3000
H D 40 1200000 35 1260000 5 12000
I A 15 40000 10 52500 5 2500
J E, G, 4 10000 1 13000 3 1000
H
K F, I, 6 30000 5 34000 1 4000
J

1. What is the Critical Path of the project?

A) A-C-G-J-K
B) B-D-H-J-K
C) B-E-J-K
D) A-I-K
(Ans.: B)
Explanation: Construct the AON network so you can visually identify all possible paths through the
project and compute their lengths.

A-I-K: 33 weeks
A-C-G-J-K: 67 weeks
B-D-H-J-K: 69 weeks
 B-E-J-K: 43 weeks

2. What is the Project’s normal, without crashing, total cost

associated? A) Rs.1306000
B) Rs.556000
C) Rs.1992000
D) Rs. 2624000
(Ans.: D)

Explanation: You should identify the critical path as B-D-H-J-K and a project length of 69 weeks. If
the project takes 69 weeks in normal time the direct costs are $1,992,000, indirect costs of
$552,000 (69 x

$8000) and $80,000 (4 weeks x $20,000) in penalty costs.

3. When we crash the project, which activity we crash FIRST and for how many
weeks we can crash it at most?
A) A for 1 Week
B) C for 4 Weeks
C) J for 3 Weeks
D) J for 2
Weeks (Ans.: C)
Explanation: If all activities on the critical path were crashed, that path duration would be 56
weeks. If all activities on A-C-G-J-K were crashed, this path length would be 47 weeks.
Since the other three paths are already less than these are, you may disregard them in the
analysis. The basic approach is to crash the lowest cost activity (or combination of activities)
on the critical path(s) keeping in mind that as activities are crashed other paths may become
critical and the cost of crashing must continue to provide a cost improvement. The cheapest
activity to crash on the critical path is activity J at $1000 per week and J can be crashed a
maximum of 3 weeks. You may not always be able to crash an activity the maximum number
of weeks because other paths may become critical. A good approach is to look at crashing
activities one week at a time and see what the effects on the project are. The new path lengths
are:

A-C-G-J-K: 64 weeks
B-D-H-J-K: 66 weeks

4. How much we have saved by crashing the activity obtained in

Q.No.03? A) Rs.54000
 B) Rs.56000
C) Rs.81000
D) Rs. 84000
(Ans.: C)

Explanation: By reducing the critical path by 3 weeks we have saved $60,000 ($20,000 x 3) in
penalty costs and $24,000 ($8000 x 3) in indirect costs for total of $84,000. It cost us $3000
($1000 x 3) in crashing costs to reduce the project length by 3 weeks, so the net savings is
$84,000 - $3000 = $81,000. The total projects costs are now $2,624,000 - $81,000 =
$2,543,000.

5. What is the minimum cost of the project and total time needed for
completion? A) Rs.2506200, 61 weeks
B) Rs.2506600, 60 weeks
C) Rs.2339000, 62 weeks
D) Rs.2342200, 61 weeks (Ans.:
A)

Explanation:
For the next iteration, crash activity D by the maximum of 2 weeks at $2000 per week.

The new path lengths are: A-C-G-J-K: 64 weeks and B-D-H-J-K: 64 weeks
The saving is $20,000 for one week (we are now out of the penalty period) and $8000
for two weeks with $4000 crashing costs for a net savings of $32,000 ($20,000 +
$16,000 - $4000). The project cost is now $2,511,000.
Notice now that we have two critical paths so to reduce the project length activities on both paths
must be crashes. We may crash one activity common to both paths or an activity unique to
each path.

Here are the alternatives to be considered: Crash (A and B), (A and H), (C and B), (C and H), (G
and B), (G and H), or K (which is common to both paths). The cost to crash all alternatives
except (C and B) at

$7600 per week and K at $4000 per week cost more than $8000 per week potential saving so we
can remove these from considerations. So, crash K the maximum possible amount - 1 week.
The paths are now: A-C-G-J-K: 63 weeks and B-D-H-J-K: 63 weeks.
The project cost is now $2,511,000 - ($8000 - $4000) = $2,507,000
The last step - Crash B and C 2 weeks simultaneously at a cost of $7600 per week yielding a net
saving of $800

The minimum cost project schedule is $2,506,200 with a project length of 61 weeks.
 Question number 06 to 11 is based on the following data for a given project:

You are the project manager of a project to build toilets across a district under Swatch Bharat
Abhiyan. You are to build two toilets a month for 12 months. Each toilet is planned to cost
$100. Your project is scheduled to last for 12 months. It is the beginning of month 10. You
have built 20 toilets and your CPI is 0.9091.

6. How is the project performing?

(A) Over budget and ahead of schedule
(B) Under budget and ahead of schedule
(C) Over budget and behind schedule
(D) Under budget and behind schedule
(Ans: A) Over budget & ahead of schedule. The problem tells you that your CPI is 0.9091, and
we know that CPI = EV/AC. Applying that, a CPI less than 1 means that we aren’t getting
enough value for each dollar that we put into our project, so it is over budget. However, the
project is ahead of schedule because we have built 20 toilets and after 9 months, we had
expected to build only 2 toilets per month * 9 months

= 18 toilets.

7. What is the actual cost of the project right

now?
(A) $1800

(B) $2000

(C)$2200

(D) $2400

(Ans.: C)
EV = 20 Toilets & $100 per Toilet
= $2000. CPI = EV/AC
0.9091 = 2000/AC, so multiply both sides
by AC AC (0.9091) = 2000, so divide
both side by 0.9091 AC = 2200

8. Assuming that the COST variance experienced so far in the project will continue, how
much more money will it take to complete the project?

(A) $400

(B) $440
(C) $2800
(D) $2840
 (Ans.: B) ETC = BAC/CPI – AC. We already know the CPI from the problem and AC from the
solution to #2, so let’s find BAC.

BAC = 2 Toilets per month * 12 months * $100 per

Toilet BAC = $2400

ETC = BAC/CPI –
AC ETC =
2400/.9091 –
2200 ETC = 440

9. If the variance experienced so far were to stop, what is the project’s estimate at
completion?

(A) $2400

(B) $2440

(C) $2600

(D) $2800
(Ans.: C) This question is asking you for the EAC if a variance that was encountered on a project is
expected to stop, so use EAC = AC + BAC – EV.

EAC = 2200 + 2400 –

2000 EAC = $2600

10. What is the project’s TCPI using the project’s budget at completion?
(A) 0.5
(B) 1.0
(C) 1.5
(D) 2.0
(Ans.: D) TCPI = (BAC – EV)/ (BAC – AC) = (2400 – 2000) / (2400 – 2200) = 400/200 = 2.

11. Senior management wants to the percentage of the project that is complete. What should you
report?
(A) 75%
(B) 83%
(C) 92%
(D) 95%
(Ans.: B) (EV/BAC) *100%