How much cash should be left over at the end of a waterfall?

• A. None
• B. A portion for reserves
• C. All remaining cash
• D. The amount equal to debt service

Answer: (A)

Cash flow in a waterfall is allocated through a fixed sequence until nothing is left to distribute. The idea is to exhaust the available cash by satisfying the priority allocations (such as preferred returns, any catch-up, and the equity split) and funding required reserves. Any funds that aren’t needed for those allocations are either set aside in reserve accounts or distributed according to the agreed terms; there’s no reason to leave cash idle inside the waterfall. In a properly built model, after all allocations and reserves are accounted for, the remaining cash should be zero (allowing for tiny rounding differences).