The Zee Group has invested $270,000 in a high-tech project lasting three years. Depreciation is $81,000, $124,000, and $65,000 in Years 1, 2, and 3. There is no salvage value for the projects assets after 3 years. The project generates earnings before tax of $23,000, $35,000, and $40,000 during the 3 years. The tax rate is expected to be 25%.

1. If the firm requires a minimum average accounting return (AAR) of 18%, should the project be approved?
2. What flaws are inherent in the AAR method? Why do managers use the AAR method?