PGMP · Question #284
An organization is considering a new program. The program has a cost of $1,950,000 and will last for three years. What is the minimum future value this organization should expect to receive from this
The correct answer is A. $2,322,481. The minimum acceptable future value of a $1,950,000 program at 6% over three years is $2,322,481, calculated using compound future value.
Question
An organization is considering a new program. The program has a cost of $1,950,000 and will last for three years. What is the minimum future value this organization should expect to receive from this program if it is initiated and the rate of return is six percent?
Options
- A$2,322,481
- B$1,950,000
- C$2,067,000
- D$1,950,001
How the community answered
(38 responses)- A74% (28)
- B13% (5)
- C11% (4)
- D3% (1)
Why each option
The minimum acceptable future value of a $1,950,000 program at 6% over three years is $2,322,481, calculated using compound future value.
Applying the future value formula FV = PV x (1 + r)^n: FV = $1,950,000 x (1.06)^3 = $1,950,000 x 1.191016 = $2,322,481. This is the minimum benefit the organization must receive to justify the investment at a 6% required rate of return. Any benefit below this amount would mean the program failed to meet its financial hurdle rate.
Returning exactly $1,950,000 would represent zero net gain and does not account for the 6% annual rate of return requirement.
$2,067,000 represents only one year of simple (not compound) interest added to the principal, ignoring two additional years of compounding.
$1,950,001 is only one dollar above the original investment and does not satisfy a 6% annual compound rate of return over three years.
Concept tested: Future value calculation for program benefit justification
Source: https://www.pmi.org/pmbok-guide-standards/foundational/pmbok
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