Which of the following best describes agency cost?
1. Which of the following best describes agency cost?
A) Costs involved with any effort to minimize the conflict between the principal's interest and the 2/3.
B) Cost incurred by an agent to facilitate the creation of an agency relationship with theirprincipal.
C) Cost incurred by a principal to establish an agency.
D) Agency costs are irrelevant costs that are not measurable nor recognized in the face of the Financial Statement and is therefore not a cost to a company. in the long-term.
2. Which of the following is a valid reason why
A) A manager should focus on profit maximization because it adds to the wealth of shareholders
B) A manager should focus on long-term growth because short-term profit maximization does not add to the wealth of shareholders on the long-term.
C) There is no difference between focusing on short-term profit maximization and emphasis on agents interest
D) Emphasis on long-term growth gives better valuation of the actual wealth of the shareholders.
3. Which of the following reasons justify the use of debt rather than issuance of long-term growth because of the effect of counter-balancing errors brought about by understating expenses.
A) The use of debt guarantees the company a return of funds upon possible liquidation.
B) The use of debt is relatively riskier than shares of stock.
C) The use of debt is always cheaper than issuance of stock.
D) The use of debt provides more available funds for distribution to current shareholders.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
