Jason and Mia are in their early 20s and have been married for three years. They are eager to purchase their first house, but they do not have sufficient money for a down payment. Mia’s Uncle Chris has agreed to loan them the money to purchase a small hou
Question:
Jason and Mia are in their early 20s and have been married for three years. They are eager to purchase their first house, but they do not have sufficient money for a down payment. Mia’s Uncle Chris has agreed to loan them the money to purchase a small house. Uncle Chris requests a personal balance sheet and cash flow statement as well as tax returns for the last two years to verify their income and their ability to make monthly payments. For the past two years, Chris has been working substantial overtime, which has increased his income by over 25 percent. The cash flow statements for the last two years show that Mia and Jason will have no difficulty making the payments Uncle Chris requires. However, Jason’s company has informed their employees that the overtime will not continue in the coming year. Mia and Jason are concerned that if they prepare their personal cash flow statement based on Jason s base salary that Uncle Chris will not loan them the money because it will show the loan payments can only be made with very strict cost cutting and financial discipline. Therefore they elect to present just what Uncle Chris requested, which are the last two years personal cash flow statements and tax returns. They decide not to provide any additional information unless he asks.
a. Comment on Mia and Jason’s decision not to provide the information underlying their cash flow statement. What potential problems could result from their decision?
b. Discuss in general the disadvantages of borrowing money from relatives.
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Elsie April 10, 2023 в 03:55a. Mia and Jason's decision not to provide the information underlying their cash flow statement could potentially lead to problems. Uncle Chris has the right to know all the factors that could impact their ability to repay the loan. By not disclosing the possible decrease in Jason's income, they are hiding important information that may affect their ability to repay the loan. This could result in Uncle Chris not approving their loan or requiring higher interest rates or collateral to secure the loan. b. Borrowing money from relatives can have several disadvantages. It may lead to strained family relationships if the borrower is unable to repay the loan on time or defaults on the loan. Additionally, relatives may not have the expertise and resources to structure the loan in a way that is advantageous for the borrower. This could result in higher interest rates, unfair terms or predatory lending practices. Finally, borrowing from relatives may not be a long-term solution as it depends on the financial situation of the relative and may not be sustainable in the future.
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