Calculation of required rate of return on Oricon and Newcrest

ACCOUNTS AND FINANCE

TABLE OF CONTENTS
Calculation of required rate of return on Oricon and Newcrest...............................................................3
Valuation using dividend model..............................................................................................................3
Performance of Orica and Newcrest........................................................................................................4
REFERENCES............................................................................................................................................7

Calculation of required rate of return on Oricon and Newcrest
In the current time period more and more investors are attracted towards the investment
avenues from which huge amount of return can be earned by the business firms. There are
number of investment areas like equity and commodity from which huge amount of return can be
earned by the investors. While making investment in any security it is necessary to obtain
information about the risks that are associated with the specific project. It is very important to
earn return according to the risk that are associated with the specific security. CAPM is the
model that reflects the return that is required for the specific amount of risk that is taken on the
investment (Bollen, Mao and Zeng, 2011). One can take wise decisions on the basis of value
that is computed by using CAPM or capital asset pricing model. If required rate of return is high
but it is not possible to achieve same return on investment then one can take decision not to make
investment in specific security. In order to make accurate decision one can calculate past year
returns and can take average of same. On that basis it can be determined whether it is possible to
obtain required rate of return if investment is made in the specific security. In order to implement
capital asset pricing model one need specific inputs. These inputs are risk free rate of return, beta
and market return. All these variables are taken in to consideration in order to compute minimum
rate of return that is required on the specific project. It can be identified that beta of the Newcrest
is -0.03 is which means that index and stock price movement are inversely associated with each
other. This means that if value of index will increase then share price will reduced sharply.
Similarly, beta value in case of Orica is 0.65 which reflects that both index and stock price are
positively correlated to each other. There is a moderate relationship between index and stock
price. It can be said that when index changed by 10% then moderate change will come in the
share price. It can be said that both firms shares relationship with the index are different and
thus, investor must cautiously make investment in both firm shares.
Valuation using dividend model
Dividend discount model is the one of the main model that is used for the equity valuation.
Under this model an investor take in to consideration dividend per share that is given by the firm
to the shareholders. Apart from this discount factor and dividend growth rate is also taken in to
consideration for valuation of equity. Under this first of all value of dividend per share is
computed and under this dividend entire value is divided by the number of shares issued by the