Which of the following is a type of agency cost?
A) The cost of an audit of the firm's financial statements.
B) The cost of a corporate jet needed to keep tabs on foreign operations.
C) Salaries paid to the firm's managers.
D) The costs of financing the firm.
E) The cost of buying insurance on the firm's assets.

Question

Quizplus · Accepted Answer

Agency costs are expenses incurred to ensure that managers act in the best interest of shareholders. An audit is a monitoring mechanism to reduce agency problems, thus it is an agency cost.

Which of the Following Is a Type of Agency Cost