Which one of the following is an agency cost?
A) Accepting an investment opportunity that will add value to the firm
B) Increasing the quarterly dividend
C) Investing in a new project that creates firm value
D) Hiring outside accountants to audit the company's financial statements
E) Closing a division of the firm that is operating at a loss

Question

Quizplus · Accepted Answer

Agency costs are expenses incurred to ensure that agents (managers) act in the best interest of the principals (shareholders). Hiring outside accountants to audit the company's financial statements is an example of an agency cost, as it is done to ensure that the financial statements accurately represent the company's financial position, thereby protecting the interests of the shareholders.

Which One of the Following Is an Agency Cost