How does Crave Cookies determine the risk-free rate for lease liabilities?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
At lease commencement, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The Company has made a policy election to use a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, the company has a specific method for determining the risk-free rate used in calculating lease liabilities. Crave Cookies uses the rate of a zero-coupon U.S. Treasury instrument to determine the risk-free rate. This rate is applied for both the initial and subsequent measurement of all lease liabilities.
This approach means that a prospective Crave Cookies franchisee's lease obligations will be evaluated using a benchmark tied to U.S. Treasury instruments, providing a standardized and transparent method for assessing these liabilities. The risk-free rate is determined using a period comparable with the lease term.
For franchisees, this is important because it affects how lease liabilities are calculated and reported on the balance sheets. By using a risk-free rate based on U.S. Treasury instruments, Crave Cookies aims to provide a consistent and objective measure for all franchisees, which can impact their financial planning and reporting.