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Which ONE of the following situations is most likely to create an agency cost? a
Which ONE of the following situations is most likely to create an agency cost? a. None of the answers are correct. ob Hiring an independent consultant to study the operating efficiency of the company. OC. Giving all employees a bonus if a certain level of stock price has been achieved. O d. Compensating a manager based on company's end of the year net income. Oe. Foregoing a profitable/risky project to protect manager's jobs.
Expert Solution
Hiring an independent consultant to study the operating efficiency of the company.
Because first we must know what is agency cost.
It is a cost which is a type of internal company expense, which arise from the activities of an agent performing on behalf of a principal. Agency costs typically arise in the wake of core inefficiencies, disappointments, and disruptions, such as conflicts of interest between shareholders and management. The payment of the agency cost is to the acting agent.
Basically any cost arises to the company from their acting partner or anyone who act as a performer on behalf of company.
So, herein the independent consultant is to study the operations for which they will charge which will be beared by the company
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