For which of the following companies would the costs of financial distress be most serious? Why? To get full credit for this problem, you must be detailed in your response and include the three theories we discussed in class regarding financial distress, and other characteristics that might be important. (Hint: It does not have to do with the amount of funds required).

a. A 2-year-old pharmaceutical company. The company has no approved drugs for sale as of yet but researchers are working to develop promising new breakthrough products.

b. A large, upscale urban hotel. The hotel has been quite successful in the past and has been recently renovated but occupancy rates in the city have fallen due to the recession.