Hurdlevack Ltd relies on the payback method of project evaluation, requiring that investments repay capital within three years. The board are currently considering the four projects listed below: (ignore tax)

Project	A	B	C	D
	$	$	$	$
Sales	40,000	75,000	60,000	60,000
Direct costs	16,000	27,000	15,000	18,000
Depreciation	8,000	40,000	30,000	35,000
Interest	12,000	16,000	9,000	7,000
Initial investment	120,000	160,000	90,000	70,000
Project life (years)	10	10	18	15

The engineering department has requested the board to evaluate these opportunities by means of a discounted cash flow technique. The finance department personnel have been unwilling to use a discounted cash flow technique because of difficulty in establishing an appropriate discount rate. They therefore propose to calculate each project's internal rate of return and let the board determine appropriate hurdle rates.

Payback Period

Project A: 10 years

Project B: 5 years

Project C: 2.6 years

Project D: 2 years

Internal Rate of Return

Project A: Nill

Project B: 15.1%

Project C: 39.9%

Project D: 49.90%

(a) Discuss the possible reasons why the above two project appraisal methods (Payback Period and IRR) do not give answers which are consistent with each other, for the accept/reject decision. Which should the board employ? Why?