Question: Division managers are padding cost estimates so as to show? short-term efficiency gains when the costs come in lower than the estimates. Which of the following statements correctly identifies the cost and possible solution for the agency problem in this? case? ?
A. One agency cost is that money budgeted to cover the project proposal is not available to fund other projects that may help to increase shareholder wealth.
B. There is no agency cost in this problem.
C. One way to reduce the agency cost is to base the reward system on how close the? employee's estimates come to the actual cost rather than having them come in below cost.
D. A reward system based on increasing shareholder wealth might motivate the division managers to make more accurate estimates in order to be able to take on additional profitable projects