Which of the following companies is likely to incur higher cost of financial distress in an economic
downturn? Justify your answer.
Company A: A one-year old bio-tech company. So far, none of the company’s product has been
approved for sale, but its scientists are working very hard in developing a breakthrough drug.
Company B: An oil and gas company. The company has 50 producing wells and 20 million barrels of
proven oil reserves.