C05: A Prospective Borrower With A Real Alternative
Why This MattersRead the earlier reference in its original context, with its historical statements and limits preserved.
Compare a financed asset purchase with the complete alternative of making no purchase. Follow vacancy, higher debt service, repairs, and lost salary through the disclosed cash paths.
Starting Position And Alternatives
Opening cash $80,000; twelve-month horizon; pay $4,500, essentials $3,200, other consumption $500 and investment transfers $300. Floor $9,600. Compare no purchase with a $100,000 asset financed by $60,000 debt, $40,000 equity and $3,000 closing costs.
Disclosed Adverse Scenario
Base asset receipts of $1,300 less $450 costs, $200 maintenance provision and $650 debt service leave $0 net cash. Asset stress: vacancy in months 2-7, debt service rises by $200 from month 5, and an $8,000 repair occurs in month 3. Combined stress also removes salary in months 2-7.
| Plan / scenario | End cash | Min cash | Floor month | Below $0 |
|---|---|---|---|---|
| no purchase / base | $86,000 | $80,000 | - | - |
| no purchase / asset stress | $86,000 | $80,000 | - | - |
| no purchase / combined shock | $59,000 | $56,500 | - | - |
| buy asset / base | $43,000 | $37,000 | - | - |
| buy asset / asset stress | $25,600 | $24,100 | - | - |
| buy asset / combined shock | -$1,400 | -$2,900 | 5 | 7 |
Interpretation
Buying ends the asset-only stress at $25,600 and stays above the floor. Combined stress ends at -$1,400 and first becomes negative in month 7. No purchase ends the combined job-loss case at $59,000.
Review Disposition
REVISE or decline the proposed purchase under the included combined scenario. A cash-screen pass in one stress is insufficient; no purchase remains a complete and legitimate choice.
Principle Illustrated
Competence does not require borrowing. Joint exposures can change a seemingly survivable acquisition into an unfunded commitment.