The following information was taken from the 2006 financial statements of pharmaceutical giant Merck and Co. All dollar amounts are in millions.
Retained earnings, January 1, 2006 ......... $37,980.0
Materials and production expense ......... 6,001.1
Marketing and administrative expense ........ 8,165.4
Dividends ................... 3,318.7
Sales revenue ................. 22,636.0
Research and development expense ......... 4,782.9
Tax expense ................. 1,787.6
Other revenue ................. 2,677.1

Instructions
(a) After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2006.
(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?