debt ratio in forcasting because, maintain, accounting

therecruit

page 414 in equity

net borrowing= dr(fcINV-dep)+dr(wcINV)

does anyone know why we are assuming that only the incremental fixed cap will be financed according to the debt ratio, why not all of it according to the debt ratio....

i am thinking because assets that have been used up should be replaced by equity holders in order to maintain same d/e since basiclly they own those assets and it is their assets that have lost value

ie we are assuming that accounting depreciation is REAL depreciation

i hope someone has a better reasoning, or at least can tell me that mine makes sense...

regards,