Problem 2: International Inc. (Investment Center Performance Evaluation) International Inc. has a cosmetics division that is classified as an Investment Centre. Below is some information on this division: The cosmetics division faces a tax rate of 21%. Assume Cost of Equity for the cosmetics division is 12.5%. a) Compute the Return on Investment (ROI) of the cosmetics division. ( 2 points) b) Compute the Cost of capital of the cosmetics division. ( 2 points) c) The manager of the cosmetics division is considering a potential investment of $35 million that is expected to generate additional operating income of $7 million in perpetuity. Will the manager invest if evaluated based on (i) ROI; (ii) Residual Income? (2 points) International Inc. \begin{tabular}{|l|r|} \hline (in millions) & Cosmetics \\ \hline Revenue & $355 \\ \hline COGS & $176 \\ \hline Depreciation & $55 \\ \hline Interest Expense & $25 \\ \hline Other Income & $20 \\ \hline \begin{tabular}{l} Income before \\ Taxes \end{tabular} & $119 \\ \hline \begin{tabular}{l} Average Operating \\ Assets \end{tabular} & $475 \\ \hline Debt & $250 \\ \hline \begin{tabular}{l} Shareholders \\ Equity \end{tabular} & $225 \\ \hline & 12.50% \\ \hline Tax Rate & \\ \hline Cost of Equity & \end{tabular} a) ROI Operating Income Average Operating Assets b) Cost of Capital c) Invest or not ? ROI of new investment Operating income Investment amount ROI (i) Evaluated based on ROI (ii) Evaluated based on RI