An Example of a Direct Agency Cost Is

question 37

Multiple Choice

An example of a direct agency cost is

• A) a manager turning down a value-contributing project because of its risks.
• B) a manager expensing a large dinner on the company expense report.
• C) a manager using too little debt within the firm's capital structure because of the additional risk associated with debt.
• D) all of the above

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Definitions:

Prepaid Insurance

An asset account representing insurance payments made in advance, which are expensed over the term of the insurance coverage.

Income Statement

A financial document summarizing a company's revenues, expenses, and profit over a specific period, typically quarterly or annually.

Financing Activities

Transactions and events where cash is raised or repaid to finance the company, including debt, equity, and dividend payments.

Fixed Assets

Long-term tangible assets held for business use and not expected to be converted to cash in the current or upcoming fiscal year.