Mukowa is one of the largest pharmaceutical firms in the world, and over an extended period

of time in the recent past, it consistently earned higher ROEs than the pharmaceutical

industry as a whole. As a pharmaceutical analyst, what factors would you consider to be

important in making projections of future ROEs for Mukowa? In particular, what factors

would lead you to expect Mukowa to continue to be a superior performer in its industry, and

what factors would lead you to expect Mukowa$$s future performance to revert to that of the

industry as a whole? $(15$ Marks$)$

$3.$ Ingrid Lombe, an analyst with Fin Pickers, Inc., claims, $$It is not worth my time to develop

detailed forecasts of sales growth, profit margins, et cetera, to make earnings projections. I

can be almost as accurate, at virtually no cost$,$ using the random walk model to forecast

earnings.$$ What is the random walk model? Do you agree or disagree with Ingrid Lombe$$s

forecast strategy? Why or why not? $(10$ Marks$)$

$4.$ Analysts believe that Manufactured Earnings is a $$darling$$ of Wall Street analysts. Its current

market price is $$27$ per share, and its book value is $$11$ per share. Analysts forecast that the

firm$$s book value will grow by $12\mathrm{.}5$ percent per year indefinitely, and the cost of equity is $17$

percent. Given these facts, what is the market$$s expectation of the firm$$s long$-$term average

ROE? $(10$ Marks