debt and $$5,046\mathrm{.}2$ million in total shareholders$$ equity. Therefore, the long$-$term debt to long$-$ term capital ratio, defined as Long$-$Term debt$/($Long$-$Term Debt $$ Shareholders$$ Equity$),$ is $9\mathrm{.}71\%.$

In the MD&A and notes to the financial statements, Starbucks also reports additional infor$-$ mation relative to its reported debt and equity:

LO $7-7$

LO $7-4,$ LO $7-6$

INTEGRATIVE CASE $7\mathrm{.}1$

Fair value of the $$549\mathrm{.}6$ million, $6\mathrm{.}25\%$ senior notes $($based on a Level$2$valuation;Note$4)$

Average market value per share for common stock during the $4$th quarter of fiscal $2012($MD&A$)$

Shares outstanding at the balance sheet date $($balance sheet$)$

$ $674$million

$$48\mathrm{.}67749\mathrm{.}3$ million

In addition, as is common practice for fast$-$food and retail coffee shop chains, Starbucks 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 $30,2012,$ provides the following future operating lease commitments of Starbucks as of the end of the fiscal year $($amounts in millions$).$

Fiscal Year Ending in:

$20132014201520162017$ Thereafter

Total lease payments

REQUIRED

$

$$4,$

$787\mathrm{.}9728\mathrm{.}5640\mathrm{.}4531\mathrm{.}5403\mathrm{.}4968\mathrm{.}5$

$060\mathrm{.}2$

a$.$ Compute the present value of operating lease obligations using a $6\mathrm{.}25\%$ 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 operating 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?

e$.$ Starbucks reports an expense labeled $$Cost of Sales including Occupancy Costs$$ on its income statement. Speculate why Starbucks reports cost of sales and occupancy $($operating lease payments$)$ costs as a combined amount on the income statement.