Integrative Case 7.1

Starbucks' cosolidated balance sheet as of September 30th, 2012 reports $549.6 million in long-term debt and $5,046.2 million in total shareholder's equity. Therefore, the lon-term debt to long term capital ratio, defined as Long-Term debt/(Long-Term Debt + Shareholders' Equity), is 9.71%. In the MD&A and notes to the financial statements, Starbucks also reports additional information relative to its reported debt and equity:

Fair value of the $549.6 million, 6.25% senior notes (based on a level 2 valuation;note 4)	$674 million
Average market value per share for common stock during the 4th quarter of fiscal 2012 (MD&A)	$48.67
Shares Outstanding at the balance sheet date (balance sheet)	749.3 million

In addition, as is common practice for fast-food and retail coffee shop chains, Starbucls leases some or all of its retail space under operating leases. Note 10 to Starbuck's consolidated financial statements for the fiscal year ending September 30th 2012, provides the following future operating lease commitments of starbucks as of the end of the fiscal year ( amount in millions).

Fiscal Year Ending In:

2013	$787.9
2014	$728.5
2015	$640.4
2016	$531.5
2017	$403.4
Thereafter	$968.5
Total Lease Payments	$4,060.2

REQUIRED

A. Compute the present value of operating lease obligations using a 6.25% discount rate. Assume that all cash flows occur at the end of each year. Also, assume that the minimum lease payments after 2017 occur evenly over a five-year period.

B. Recompute the long-term debt to long-term capital ratio assuming that Starbucks capitalizes operting leases and reports the long-term portion as part of long-term debt.

C. Recompute the long-term debt to long-term capital ratio assuming that the long-term portion of operating leases are treated as long-term debt and using market values of long-term debt and equity.

D. Comment on the results from requirements B. and C., what additional insights do these alternative calculations provide?