CTE CTE Financial Management & Budgeting 2

Question 1

Which financial ratio do telecom analysts use to assess a carrier's ability to service its debt, calculated as EBITDA divided by total interest expense?

Accepted Answer

Interest coverage ratio

Answer

The interest coverage ratio measures how many times a company's EBITDA covers its annual interest payments, indicating financial health and debt serviceability.

Question 2

In US telecom financial reporting, how are spectrum licenses typically treated on the balance sheet under US GAAP?

Accepted Answer

Recorded as intangible assets and evaluated annually for impairment (not amortized for indefinite-lived licenses)

Answer

Under US GAAP, spectrum licenses with indefinite useful lives are recorded as intangible assets and tested annually for impairment rather than systematically amortized.

Question 3

A CTE must present the financial justification for a $200M fiber-to-the-home (FTTH) buildout. Which metric would best demonstrate long-term project viability to the board?

Accepted Answer

Internal Rate of Return (IRR) compared to the company's hurdle rate

Answer

IRR calculates the discount rate at which the project's NPV equals zero; if IRR exceeds the company's hurdle rate (cost of capital), the project creates shareholder value.

Question 4

What is churn rate and why is it a critical financial metric for US mobile carriers?

Accepted Answer

The percentage of subscribers who cancel service in a given period, directly impacting recurring revenue

Answer

Churn rate measures subscriber attrition; high churn erodes the recurring revenue base and forces expensive re-acquisition spending to maintain subscriber counts, directly affecting profitability.

Question 5

When evaluating a telecom merger in the US, what is the financial significance of 'synergies' in the deal valuation?

Accepted Answer

Cost and revenue synergies represent incremental value created by combining two companies that neither could achieve independently

Answer

Synergies — including network cost reduction, overlapping OpEx elimination, and combined pricing power — justify paying a premium over standalone value in telecom M&A transactions.

(CTE) Certified Telecommunications Executive Practice Test

(CTE) Certified Telecommunications Executive Practice Test

CTE CTE Financial Management & Budgeting 2