The following information was taken from the 2004 financial statements of pharmaceutical giant Merck and Co. All dollar amounts are in millions.

Instructions

(a) After analyzing the data, prepare an income statement and a retained earnings state-

Retained earnings, January 1, 2004 $34,142.0 Materials and production expense 4,959.8 Marketing and administrative expense 7,346.3 Dividends 33204 Sales revenue 22,938.6 Research and development expense 4,010.2 Tax expense 26 let Other revenue S52 ment for the year ending December 31, 2004.

(b) Suppose that Merck decided to reduce its research and development expense by 50%.

What would be the short-term implications? What would be the long-term implications?

How do you think the stock market would react?