Question

Examples of agency costs are:

1. The total dividends paid to shareholders over the lifetime of the firm.

2. The costs that result from default and bankruptcy of the firm.

3. Corporate income subject to double taxation.

4. The costs of the conflict of interest between stockholders and management.

5. The total interest paid to creditors over the lifetime of the firm.

Answer 1

Agency costs are those costs which are incurred on the part of the management and which are causes of conflict from shareholders perspective.

Management are believed to be the agents of the shareholders and they are expected to act in the interest of the shareholders but when management acts in their own interest and they do not act in interest of shareholder, it will result in conflict of interest and agency problem.

Correct answer is option -

4) the cost of conflict of interest between stockholders and Management.

Other statements are incorrect

Correct answer is option (4).