Analysis of Telstra's Investment Decision: A Financial Report

This report analyzes Telstra's investment decision-making process, focusing on key financial metrics. It examines the application of Net Present Value (NPV), Internal Rate of Return (IRR), and payback period to evaluate the feasibility of an investment project. The analysis considers the impact of changes in the Weighted Average Cost of Capital (WACC) on project viability. The report also explores the implications of depreciation methods and compares the project's IRR with alternative investment opportunities. It highlights the importance of the IRR as a measure of a project's attractiveness, independent of external factors like the cost of capital and inflation, and provides insights into how these factors influence the overall investment decision. The report concludes with a discussion of the factors that influence the investment decision and the importance of IRR and the payback period.

Running Head: Investment Decision of Telstra
Investment Decision of Telstra
Name of the Student
Name of the University
Author Note

1Investment Decision of Telstra
Table of Contents
Task B........................................................................................................................................2
References..................................................................................................................................3

2Investment Decision of Telstra
Task B
In order to rollout the decision whether to accept or reject the investment project plan
there are certain things which are needed to be considered and these information include the
net present value, the internal rate of return and the payback period. A project will be
accepted only if there is a positive net present value and the internal rate of return is higher
than the discounting rate. The more the higher is the IRR the more feasible the project will be
considered (Leyman and Vanhoucke 2016). The payback period also plays an important role
for determining the feasibility of the project as it is referred to the amount of time which is
required to recover the cost of investment and a shorter payback period is naturally preferred
(Gorshkov, et al. 2018). If there is increase in the WACC to 9% then it will disrupt the
project as there will be either decrease in the NPV or it can also become negative and a
negative NPV is not accepted (Magni 2015). On the other hand, if the payphones are to be
depreciated at 20% over the 5 years then it will not make any effect in the investment
decision as the calculation has not taken into consideration any calculation of the
depreciation. However, if there is any alternative investment option which will have the
internal rate of return of 17% that will also not be accepted because the present investment
plan is offering an IRR of 17.62% which indicates that there is 0.62% of more chance of
profitability of the potential investments. Furthermore, according to Patrick and French the
higher the rate of the internal rate more attractive and desirable the project will be. The IRR is
also referred to as economic rate of return and it omits the external factors like the cost of
capital or inflation.

3Investment Decision of Telstra
References
Gorshkov, A.S., Vatin, N.I., Rymkevich, P.P. and Kydrevich, O.O., 2018. Payback period of
investments in energy saving. Magazine of Civil Engineering, (2).
Leyman, P. and Vanhoucke, M., 2016. Payment models and net present value optimization
for resource-constrained project scheduling. Computers & Industrial Engineering, 91,
pp.139-153.
Magni, C.A., 2015. Investment, financing and the role of ROA and WACC in value
creation. European Journal of Operational Research, 244(3), pp.855-866.
Patrick, M. and French, N., 2016. The internal rate of return (IRR): projections, benchmarks
and pitfalls. Journal of Property Investment & Finance.