Dennis and Nancy are in their early twenties 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. Nancy’s Uncle Charley has agreed to lend them the money to purchase a small house. Uncle Charley requests a personal balance sheet and a cash flow statement as well as tax returns for the previous two years to verify their income and their ability to make monthly payments. For the past two years, Dennis has been working substantial overtime, which has increased his income by more than 25 percent. The cash flow statements for the last two years show that Nancy and Dennis will have no difficulty making the payments Uncle Charley requires. However, Dennis’ company has informed its employees that the overtime will not continue in the coming year. Nancy and Dennis are concerned that if they prepare their personal cash flow statement based on Dennis’ base salary, Uncle Charley will not lend them the money because it will show the loan payments can only be made with very strict costcutting and financial discipline. Therefore, they elect to present just what Uncle Charley requested, which was the previous two years’ personal cash flow statements and tax returns. They decide not to provide any additional information unless he asks for it.

a. Comment on Nancy and Dennis’s decision not to provide the information underlying their cash flow statement. What potential problems could result from this decision?

b. Discuss the disadvantages of borrowing money from relatives in general.