Question - Briggs & Stratton Corporation is the world's largest maker of air-cooled gasoline engines for outdoor power equipment. The company's engines are used by the lawn and garden equipment industry. According to the company's annual report, "management subscribes to the premise that the value of Briggs and Stratton is enhanced if the capital invested in its operations yields a cash return that is greater than that expected by the providers of capital."
The following data are from Briggs and Stratton's 2008 annual report with operating profit and average invested capital adjusted to reflect the capitalization of R&D and the use of FIFO inventories (thousands of dollars):
Adjusted before tax operating profit: $71,460 (2008) $52,190 (2007)
Cash taxes: $10,853 (2008) $30,424 (2007)
Adjusted average invested capital: $1,687,082 (2008) $1,652,321 (2007)
Cost of capital: 9.4% (2008) 9.9% (2007)
1) Compare the EVA for Briggs and Stratton for 2007 and 2008.
2) Did Briggs & Stratton's overall performance improve from 2007 to 2008? Explain.