Cowboy Ice Cream, Inc. is a small business and likely wouldnt go public at any time in the foreseeable future. However, factors that increase the value of CIC are also factors that increase the value of publicly traded companies. Users of the financial statements are particularly interested in better understanding the events and circumstances that create value. Although the financial statements report highly relevant and important information, they mainly contain details about transactions that have already occurred. While this information can help users to better understand past performance (and better predict what will happen in the future) the financial statements are just one piece of information in a very large set. Consequently, users need to be aware ofand prepared to respond toother events that can help them to better forecast a particular companys future. Keep these points in mind as you respond to the following.

E8-18

Discount Drugs (one of the three largest drug makers) just reported that its 2018 third quarter profits are essentially the same as the 2017 third quarter profits. In addition to this announcement, the same day, Discount Drugs also announced that the Food and Drug Administration has just approved a new drug to treat high blood pressure that Discount Drug developed. This new drug has been shown to be extremely effective and has few or no side effects. It will also be less expensive than the other drugs currently on the market.

Required

1. What do you think will happen to the stock price of Discount Drugs on the day these two announcements are made? Explain your answer.

2. How will the balance sheet be affected on that day by these announcements?