Final answer:
The decision to invest in a project with a 6% return when the borrowing cost is 8% depends on whether the firm has cash and if it can find an alternative investment with a higher return. If the firm has the cash and no better investment opportunities, it would be wise to invest. The key comparison is between the return of the investment and the cost of financial capital or alternative investments.
Step-by-step explanation:
The subject question involves the consideration of whether a firm should invest in a project with a 6% rate of return when the borrowing cost is 8%. Since the firm does not need to borrow due to having cash on hand, it can compare the investment return directly to its other opportunities for using that cash. If the firm has no better use for the cash that would grant a return higher than 6%, it should make the investment.
To assess whether the firm should make the investment, one must compare the 6% investment return against the cost of financial capital and the firm's alternative investment opportunities. If 6% is equal to or higher than those opportunities, investing the cash would be advisable.
In this case, since the cost of borrowing is higher (8%) than the earned return (6%), using borrowed money would not be advisable. As the firm has the cash available, it avoids the higher interest cost of borrowing. Therefore, this comparison supports the decision to invest if no better return options are available.