How does Cool Binz determine the fair value of notes receivable?
Cool_Binz Franchise · 2025 FDDAnswer from 2025 FDD Document
Financial instruments consist of accounts receivable, notes receivable, accounts payable, and debt. The carrying amount of accounts receivable, accounts payable, and debt approximates fair value due to either the short maturity or the existence of variable interest rates that approximate prevailing market rates. The fair value of notes receivable is determined as the present value of future contractual cash flows discounted at an interest rate that reflects the risks inherent in those cash flows. The discount rates range from 4.0% to 12.0% and approximate rates currently observed in publicly traded debt markets for debt of similar terms to individuals with comparable credit risk. As of December 31, 2024, 2023, and 2022 the carrying value of notes receivable approximates fair value.
Source: Item 23 — RECEIPTS (FDD pages 63–238)
What This Means (2025 FDD)
According to Cool Binz's 2025 Franchise Disclosure Document, the fair value of notes receivable is determined by calculating the present value of future contractual cash flows. This calculation involves discounting these cash flows at an interest rate that reflects the risks associated with them.
The discount rates used by Cool Binz range from 4.0% to 12.0%. These rates are designed to approximate the rates observed in publicly traded debt markets for debt with similar terms issued to individuals with comparable credit risk. This approach ensures that the fair value reflects current market conditions and the specific risk profile of the notes receivable.
The document also states that as of December 31, 2024, 2023, and 2022, the carrying value of notes receivable approximates fair value. This suggests that the methods used by Cool Binz to determine fair value are considered reasonable and accurate, aligning with standard accounting practices.