Pharoah Company is considering a long-term investment project called ZIP. ZIP will require an investment of $140,000. It will have a useful life of 4 years and no salvage value. Annual revenues would increase by $81.300, and annual expenses (excluding depreciation) would increase by $39,300. Pharoah uses the straight-line method to compute depreciation expense. The company's required rate of return is 7%.

1. Compute the annual rate of return.

2. Determine whether the project is acceptable?