Final answer:
To calculate the IRR for a capital project using the cash flows given, input each cash flow into a financial calculator and use its IRR function. Investment decisions change when a firm can take into account both private returns and social returns, leading to adjustments in the effective rate of return.
Step-by-step explanation:
The question at hand involves calculating the Internal Rate of Return (IRR) for a capital project based on provided cash flows. To find the IRR using a financial calculator, you need to input each cash flow at the respective periods and utilize the calculator's IRR function to determine the discount rate that equates the present value of cash inflows with the present value of cash outflows.
Additionally, the question explores investment decisions based on the interest rate, cost of financial capital, and return to society. If a firm can capture both the private returns and the additional social returns on its investments, it will adjust its effective rate of return and invest accordingly.
While the question doesn't specify exactly how to use the figures mentioned, like $102 million or the effective rate of return being 4% if the cost of financial capital is 9% and the social return is 5%, these details matter in investment analysis where social benefits are considered alongside private benefits.