The following information was taken from the 2009 financial statements of pharmaceutical giant Merck and Co. All dollar amounts are in millions.
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Retained earnings, January 1, 2009
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$43,698.80
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Materials and production expense
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9,018.90
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Marketing and administrative expense
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8,543.20
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Dividends
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3,597.70
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Sales revenue
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27,428.30
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Research and development expense
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5,845.00
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Tax expense
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2,267.60
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Other revenue
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11,147.70
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Instructions
(a) After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2009.
(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?