Explanation
The project manager should handle the situation by having a discussion with the sponsor and recommending the project business value be reassessed. This is because the project manager is not authorized to cancel the project, but should communicate the new information to the sponsor and suggest a reevaluation of the project benefitsand alignment with the organizational strategy. This approach is consistent with the principles of stakeholder engagement, communication management, and business environment in project management.
References:
PMBOK Guide, 6th edition, pages 33-34, 51-52, 513-514.
PMP Exam Content Outline, June 2019, pages 6-7, 10-11, 16-17.