What valuation techniques might Bombs Away use for Level 3 financial instruments?

According to Bombs Away's 2024 Franchise Disclosure Document, Level 3 financial instruments are valued using unobservable inputs. When determining the fair values of these instruments, Bombs Away may use pricing models, discounted cash flows, or similar techniques. A financial instrument is classified as Level 3 if its fair value is determined using these methods and at least one significant model assumption or input is unobservable.

For a prospective Bombs Away franchisee, this means that the valuation of certain financial instruments may rely heavily on internal assumptions rather than readily available market data. This approach carries inherent risks, as the accuracy of these valuations depends on the reasonableness and reliability of the assumptions made by Bombs Away.

It is important to note that the FDD states that as of December 31, 2023, the carrying amounts of Bombs Away's financial assets and liabilities reported in the balance sheets approximate their fair value. This suggests that any Level 3 valuations are not expected to significantly impact the overall financial position of the company. However, prospective franchisees should still understand the methods used to value these instruments and the potential impact of changes in unobservable inputs on their fair value.