If the Firm's Actual Debt Ratio Is Below Its Target

question 7

True/False

If the firm's actual debt ratio is below its target level, expansion capital should be raised by issuing equity in order to preserve the firm's borrowing capacity.

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Definitions:

GAAP

Generally Accepted Accounting Principles; a collection of commonly-followed accounting rules and standards for financial reporting.

ABC

Activity-Based Costing, an accounting method that assigns costs to products and services based on the resources they consume.

Traditional Overhead Costing Systems

Costing systems that allocate overhead to products based on predetermined overhead rates, often using direct labor hours or machine hours as the allocation base.

Allocated Overhead Costs

Expenses related to the indirect costs of production that are assigned to specific products or departments based on a formula or method.