Answer: Return excess cash to shareholders through dividends or share repurchases

## Explanation **Note:** The question appears to be incomplete in the provided text. Based on the context of agency costs and corporate finance principles, the most likely correct approach would be: **Return excess cash to shareholders** through dividends or share repurchases. **Agency Cost Context:** - **Agency costs** arise from conflicts between managers and shareholders - Managers may pursue personal goals (empire building, excessive perks) rather than maximizing shareholder value - When companies have excess cash and limited investment opportunities, managers might: - Make poor acquisitions - Invest in negative NPV projects - Engage in wasteful spending **Best Solution:** - **Return cash to shareholders** through dividends or share repurchases - This reduces the "free cash flow" available for managers to misuse - Aligns management incentives with shareholder interests - Forces managers to seek external financing for new projects, which subjects them to market discipline **Alternative approaches:** - Increase debt financing (creates fixed obligations that discipline management) - Implement stronger corporate governance - Use performance-based compensation However, returning excess cash is typically the most direct and effective solution for reducing agency costs in this scenario.

Author: LeetQuiz Editorial Team