Question

Cash for Clunkers:

A clunker that travels 12,000 miles a year at 15 mpg uses 800 gallons of gas a year. A vehicle that travels 12,000 miles a year at 25 mpg uses 480 gallons a year.

The government claims 700,000 vehicles were exchanged so that's 224 million gallons saved per year.

That equates to a bit over 5 million barrels of oil.

To put this perspective, 5 million barrels is about 5 hours worth of US consumption.

More importantly, 5 million barrels of oil at $95 per barrel costs about $475 million dollars.

The government PAID $3 BILLION to save $475 million.

What is the ROI ? s

Do you think it was worth it?

I am confuse on which number is should use to get my ROI. Can you hlep me solve this problem

Answer 1

Solution:
	Return on investment (ROI) = -84.17%
	"NO"
Working Notes:
1st	Return on investment (ROI) = (Benefit due to investment - Investment)/Investment
	Benefit due to investment = $475,000,000 worth of oil is saved.
	Investment = $3,000,000,000 on the scheme by the government.
	Return on investment (ROI) = (Benefit due to investment - Investment)/Investment
		=($475,000,000 - $3,000,000,000)/$3,000,000,000
		=-0.84166666667
		=-0.8417
		= -84.17 %
2nd	"NO"
	It does not worth to spend $3,000,000,000 to save $475,000,000 at least in our ROI basis, we have     -84.17% return means we have lost $3000,000,000 x 84.1666666% =$2,525,000,000 to save $475,000,000
	In finance sense it does not fit
	But may be for government for foreign policy or environmental policy need to do this.
Please feel free to ask if anything about above solution in comment section of the question.