Which one of these best fits the description of an agency cost?
A)The costs of increasing the dividend payment per share
B)The benefits received from reducing production costs per unit
C)The payment of corporate income taxes
D)The payment required for an outside audit of the firm
E)The payment of interest on a firm's debts

Question

Quizplus · Accepted Answer

Agency costs are expenses incurred to ensure that agents (managers) act in the best interest of the principals (shareholders). The payment required for an outside audit of the firm is an example of an agency cost, as it is a measure taken to ensure that the financial statements accurately represent the firm's financial position, protecting the interests of the shareholders.

Which One of These Best Fits the Description of an Agency