Which of the following is not an example of agency costs between debt and equity?
A)A company issues new debt,which ranks equal or higher than existing debt.
B)A company issues new equity.
C)A company significantly increases its dividend payout ratio.
D)A company rejects low-risk investments with positive NPV.

Question

Quizplus · Accepted Answer

Agency costs between debt and equity typically arise from conflicts of interest between shareholders and debt holders. Issuing new equity (B) does not directly create a conflict between these two groups, unlike the other options which can disadvantage debt holders by increasing risk or reducing the assets available to them in case of default.

Which of the Following Is Not an Example of Agency