Question

Which one of the following statements is TRUE?

	a.	The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost.
	b.	An example of an agency cost is the salary of the agent hired to work for the principal.
	c.	An example of an agency cost is when the board of directors pays a dividend to shareholders.
	d.	An example of an agency cost is when an attorney hires an expert witness for a trial.
	e.	An example of an agency cost is when an outside investor is only willing to pay less for stock because she thinks the original owner will consume too many perquisites. ​ ​

Answer 1

b.An example of an agency cost is the salary of the agent hired to work for the principal.

To understand this question understand the meaning of Agent:-

Agent is a person that is works on behalf of the person (principal) and Principal is Liable for the all the activities taken over by agent so according to above meaning we can consider that board of directors are the agent of the shareholders. They work on behalf of shareholders and at last shareholders have to tolerate profit or loss. So the Amount that Directors charges to be such agents are called the Agnecy Cost.

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