MM3. Calculate the alternate decomposition of ROCE from Chapter 5 (and as discussed in the lecture on Financial Flexibility - alternate decomposition of ROCE) of the text (ROCE = OROA + (Leverage * Spread) for 2017 & 2018. Using this alternate decomposition of ROCE, explain what each component represents, commenting specifically on changes in the firm's leverage and spread. Also, out of each dollar of additional debt, how much is net profit from operating activities, and what is the cost ($) to service the additional debt? What is the marginal contribution ($) to common shareholders?

Consolidated Statements of Earnings - USD ($) shares in Millions, $ in Millions

12 Months Ended

Sep. 30, 2018 Oct. 01, 2017 Oct. 02, 2016

Net Revenues:

Revenues $ 24,719.5 $ 22,386.8 $ 21,315.9

Cost of sales including occupancy costs 10,174.5 9,034.3 8,509

Store operating expenses 7,193.2 6,493.3 6,064.3

Other operating expenses 539.3 500.3 499.2 Depreciation and amortization expenses 1,247 1,011.4 980.8

General and administrative expenses 1,759 1,450.7 1,408.9 Restructuring Charges 224.4 153.5 0

Total operating expenses 21,137.4 18,643.5 17,462.2 Income from equity investees 301.2 391.4 318.2 Operating income 3,883.3 4,134.7 4,171.9

Gain resulting from acquisition of joint venture 1,376.4 0 0 Gain (Loss) on Disposition of Business 499.2 93.5 5.4 Interest income and other, net 191.4 181.8 102.6

Interest expense (170.3) (92.5) (81.3)

Earnings before income taxes 5,780 4,317.5 4,198.6 Income Tax Expense (Benefit) 1,262 1,432.6 1,379.7

Net earnings including noncontrolling interests 4,518 2,884.9 2,818.9

Net earnings/(loss) attributable to noncontrolling interests (0.3) 0.2 1.2

Net earnings attributable to Starbucks $ 4,518.3 $ 2,884.7 $ 2,817.7

Earnings Per Share, Basic $ 3.27 $ 1.99 $ 1.91

Earnings Per Share, Diluted $ 3.24 $ 1.97 $ 1.90 Weighted average shares outstanding:

Basic 1,382.7 1,449.5 1,471.6

Diluted 1,394.6 1,461.5 1,486.7

HistoricalMarket Date (all Fridays) 9/28/2018 9/29/2017 9/30/2016

Historical Market Price 56.84 53.71 54.14

CSHO 1,309.10 1,431.60

Market Value of Equity 74,409.24 76,891.24