Discount Drugs (one of the three largest drug makers) just reported that its Year 2 third quarter profits are essentially the same as the Year 1 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 used to treat high blood pressure that Discount Drugs 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

Using this information, answer the following questions:

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

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

c. How will the income statement be affected on that day by these announcements?

d. How will the statement of cash flows be affected on that day by these announcements?