Questions from Choice Hotels:

Income Statement 1. Explain the various sources of revenue recognized by Choice Hotels. You may wish to read the first two pages of the 10-K business section for explanations 2. We would like to increase our net income next year. Based on your 10-K income statement analysis, which accounts should we look at to achieve this goal and why? Do you expect the new lower federal income tax to increase net income? 3. Which of these income statement accounts would have the greatest impact on reducing our overall debt and why? Recognize that only cash can be used to reduce debt.

Balance Sheet 1. What portion of assets are finance with debt and what portion with equity? What difference does it make? Does it matter that Liabilities are higher than Assets and equity is negative? 2. Based on your estimation, do we have enough cash and cash equivalents to pay off our current liabilities? Would you advise eliminating the loyalty program or is it better to keep some liabilities? If we have more than enough cash and cash equivalents, what percentage of long-term debts, if any, can we pay? 3. Which balance sheet account(s) on our 10-K report, in your estimation, should we consider to reduce our long-term debt, and why? Management has chosen to make investments in other entities such as loans to hotel owners, and funding employee benefit plans. Management considers these to be wise and necessary for growth.

Cash Flow 1. Should the company try to reduce debt or to grow rapidly to return to a positive stock holder equity? We are trying to reduce our debt. How would you recommend modifying the cash flow (increase or decrease) in each of the three activities: (1) operating activities, (2) investing activities, and (3) financing activities? Explain. Remember that positive numbers mean cash is flowing in and negative numbers mean that cash is flowing out 2. We are trying to improve our operations by increasing cash flow in one of the three activities: (1) operating activities, (2) investing activities, or (3) financing activities. Which one of the three activities would you recommend, and why? 3. Is there sufficient operating cash flow to sustain the capital expenditures and distribute dividends to shareholders?

Business Performance Ratio Note: Use the ratios in your answers, and explain what the ratios mean. Note: Shareholder equity remains negative at the end of 2017. The deficit is decline. The large negative equity was caused by earlier purchases of Treasury Stock. This will make the equity multiplier, return on equity, and the debt to equity ratios meaningless. 1. To help improve our operations, comment on how we are doing with respect to asset management. Are there any areas for improvement? 2. To measure our company's solvency, which of these ratios would we use and why? For Companies with deficits in shareholder equity, many analysts look to consistent strong cash flow from operations as the best indication of solvency 3. In an effort to help us improve our overall debt situation, we would like you to provide us with an assessment of our company's solvency and leverage. What would be your plan to achieve positive equity? 4. Why might the ratios have increased or decreased?

Balance Sheet Ratio Note: Use the ratios in your answers, and explain what the ratios mean. 1. Based on your calculations of current ratio and total-asset turnover ratio, what would you recommend we do to improve our asset management? 2. We would like to improve the use of our working capital. Based on your ratio calculations. What are your specific recommendations? Please note that the current liability for deferred revenue consists primarily of amounts owed to customers in Loyalty programs. This will limit what can be done to increase working capital. See below: 3. Based on the ratios you calculated above, would you invest in our company? Why or why not?

CHH 2017 10- 03 neport CHH 201710-0 02 Report CHH201710-00i Report CHH 201710- Repot CHH 2015 10-K Report (Q3/02)-1(2/011-1 Percent change Percent change from Q2 to Q from (1 to 02 2017 2017/2016)-1 Percent change trom 017 03 2017 02 2017 01 01710-K Royalty fees Initial tranchise and relicensingtees 45,202 $ 26,262 34,661 567,082 34,048 92,496 6,981 11,058 $ 69,989 5,006 6,476-27% $ Initial franchise and relicensing tees Procurement servicos 23,953 8,103 11% nd reservation system 167,763 S 158,035S 109,475 and resevation systen 525,716 23,199 8,567 $ 8,229 5 3% 4 1% Total revenucs 276,700 197,808 1% Total revenues 007,356 0% OPERATING EXPENSES OPERATING EXPENSES Selling, goneral and administrative$ Depreciation and amortization Marketing and reservation system Total operating expensps Gain (luss) on sale of assets, net Operating income selling, general and administrative 46,364$ 32,846 71% 163,377 5 12,431 567,083 742,891 $ 148,728 11,NS 525,716 686,140 158,035 199,203 $ Marketing and reservation system Total operating expenses Gain (loss) on sale of assets, net Operating income 167,763 5 109,475 5% 44% 17,272 us% 77,834 $ 77,506 52,507 264,433 11% OIHER INCOME ANU EXPENSES, NEI Interest expense Interest income DIHER INCUME AND EXPENSES, NEI Interest expense Interest Income Other gains Cquity in net (income) loss of atiliates Total nther Income and expenses, net Income before income taxes Income taxes Net Income 11,390 1,575) $ 11,280 $ (1438 45,030 5,920 1% (1,264 3,535 (893596 2,080 11,124-8% 41,333 12,639-7% 8,744 4,545 40,436 $ Equity in net (income) loss of attiliates Total other Income and expenses, net Income before income taxes Income taxes Net Income 1492 8,915 199,990 60,609 139,371 10,125 $ 1% 20,919 $ 47,595 22,386 44,995 77% 109,104 $ 114,893$ CHH 2017 10- 03 neport CHH 201710-0 02 Report CHH201710-00i Report CHH 201710- Repot CHH 2015 10-K Report (Q3/02)-1(2/011-1 Percent change Percent change from Q2 to Q from (1 to 02 2017 2017/2016)-1 Percent change trom 017 03 2017 02 2017 01 01710-K Royalty fees Initial tranchise and relicensingtees 45,202 $ 26,262 34,661 567,082 34,048 92,496 6,981 11,058 $ 69,989 5,006 6,476-27% $ Initial franchise and relicensing tees Procurement servicos 23,953 8,103 11% nd reservation system 167,763 S 158,035S 109,475 and resevation systen 525,716 23,199 8,567 $ 8,229 5 3% 4 1% Total revenucs 276,700 197,808 1% Total revenues 007,356 0% OPERATING EXPENSES OPERATING EXPENSES Selling, goneral and administrative$ Depreciation and amortization Marketing and reservation system Total operating expensps Gain (luss) on sale of assets, net Operating income selling, general and administrative 46,364$ 32,846 71% 163,377 5 12,431 567,083 742,891 $ 148,728 11,NS 525,716 686,140 158,035 199,203 $ Marketing and reservation system Total operating expenses Gain (loss) on sale of assets, net Operating income 167,763 5 109,475 5% 44% 17,272 us% 77,834 $ 77,506 52,507 264,433 11% OIHER INCOME ANU EXPENSES, NEI Interest expense Interest income DIHER INCUME AND EXPENSES, NEI Interest expense Interest Income Other gains Cquity in net (income) loss of atiliates Total nther Income and expenses, net Income before income taxes Income taxes Net Income 11,390 1,575) $ 11,280 $ (1438 45,030 5,920 1% (1,264 3,535 (893596 2,080 11,124-8% 41,333 12,639-7% 8,744 4,545 40,436 $ Equity in net (income) loss of attiliates Total other Income and expenses, net Income before income taxes Income taxes Net Income 1492 8,915 199,990 60,609 139,371 10,125 $ 1% 20,919 $ 47,595 22,386 44,995 77% 109,104 $ 114,893$