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1  Terracotta plc has paid an annual dividend of 15p per share over the past 20 years and the current ex dividend market price of its shares is £1

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1 

Terracotta plc has paid an annual dividend of 15p per share over the past 20 years and the current ex dividend market price of its shares is £1.36p. The company is considering accepting a new project, which it will finance by suspending dividends for the next 3 years. After this period, the company will pay an increased dividend of 19p per share for the foreseeable future. If the company takes on the project and uses the proposed method of financing, what will be the expected share price?

a) £1.36 b) £1.72 c) £1.60 d) £1.26 e) £1.13

2 

Purchasing power parity states that the price of a similar good will be same in two countries. So in the given scenerio McDonald's Big Mac costs 2.36 yuan in China but costs $4.13 in the United States

2.36 yuan = $ 4.13

1$ = 2.36 / 4.13

1$ = 0.5714 yuan

As the purchasing power parity exists so, in order to purchase 1 U.S Dollar we would require 0.5714 Chinese Yuan