Reference no: EM133172925

Question - ABC Lodging, a 20-room hotel, requires $2,000,000 for construction. Equity will be $1,400,000 and the rest will be a loan of $600,000 at an interest rate of 10%. The owner desires an annual return of 20% on his equity. The income tax rate will be 36%. Depreciation cost will be $40,000 per year. Interests and depreciation are the major fixed charges. Other fixed costs and fixed charges will be $20,000. Undistributed operating expenses will total $400,000. The hotel has no other operated departments. The estimated direct expenses of the room department will be $10 per room sold. Occupancy is projected to be 70%. Determine the target ADR using the Hubbart Formula (rounded to two decimal points).