How does Crave Cookies determine the risk-free rate used for lease liability measurements?

According to Crave Cookies's 2025 Franchise Disclosure Document, the company has elected to use a risk-free rate, specifically the rate of a zero-coupon U.S. Treasury instrument, for both the initial and subsequent measurement of all lease liabilities. This risk-free rate is determined using a period comparable with the lease term.

For a prospective Crave Cookies franchisee, this means that when calculating the financial obligations related to leasing property or equipment, Crave Cookies uses the interest rate associated with U.S. Treasury instruments that have no coupon payments. This rate serves as a baseline for assessing the present value of lease payments. By using a risk-free rate tied to U.S. Treasury instruments, Crave Cookies aims to provide a consistent and objective method for evaluating lease liabilities.

The selection of a risk-free rate is a standard accounting practice to discount future lease payments to their present value, reflecting the time value of money. The rate is 'risk-free' because U.S. Treasury instruments are considered to have a negligible risk of default. The term of the U.S. Treasury instrument used will match the length of the lease, ensuring an accurate reflection of the time period the lease covers.

It is important for franchisees to understand how lease liabilities are calculated, as these liabilities can significantly impact their financial statements and overall profitability. Franchisees should consult with financial advisors to fully grasp the implications of using a risk-free rate based on U.S. Treasury instruments and how it affects their specific lease agreements with Crave Cookies.