How does Benihana determine the present value of lease payments for leases that do not have a rate implicit in the lease?

According to Benihana's 2024 Franchise Disclosure Document, when a lease does not have a rate implicit in the lease, Benihana uses its incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate is defined as the rate of interest Benihana would have to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.

For a prospective franchisee, this means that if the lease agreement for their Benihana restaurant location doesn't specify an interest rate, Benihana will use an estimated interest rate to calculate the present value of the lease payments. This estimated rate is based on what Benihana would likely have to pay to borrow a similar amount under similar conditions.

This approach is fairly standard in accounting for leases, as it provides a consistent method for valuing lease obligations. It's important for franchisees to understand that this calculation affects how the lease is reported on Benihana's financial statements, impacting their overall financial picture. Franchisees should also be aware that the lease term includes the non-cancellable period, any extension options Benihana is reasonably certain to exercise, and any termination options they are reasonably certain not to exercise.