Final answer:
The calculation of EAR typically involves the IRR of constant cash flows, adjusted for compounding annually. However, to determine if an investment is worthwhile when comparing the potential return to the cost of borrowing, one should compare the rate of return of the investment to the interest rate of the loan. In this case, the firm should not invest as the return is lower than the borrowing cost.
Step-by-step explanation:
The student's question relates to the calculation of the Effective Annual Rate (EAR) for a series of cash flows from an investment. To find the EAR, one would typically use the internal rate of return (IRR) approach for the given cash flows and then adjust it for compounding over the year if necessary. However, the cash flows provided do not appear to be for a standard EAR calculation typically which involves an initial investment and a constant return rate.
In situations where an investor is evaluating whether to make an investment with available cash versus taking a loan, the comparison is between the potential rate of return from the investment and the interest rate on the loan. Here, as the investment offers a 6% return while the loan has an 8% interest rate, without additional benefit considerations, the firm should not make the investment as it yields a lower return than the cost of capital.