Sample Question Paper as per KTU MBA 2020 admissions: Series Test-1.1

 

Marks: 30                                                                                          Time: 90 minutes 

(1 hour for writing and half an hour for scanning & uploading to specified email ID)                                                                           

Part – A

(Answer all questions @ 2marks )

1.      List difference in meaning of Law and Ethics

2.      List the key difference between the Utilitarian theory propounded by Jeremy Bentham and John Stuart Mill

3.      List the three Elements of Indian Ethos

4.      Write a short note on  Insider trading

 

Part – B

(Answer 2 out of 3@ 6 marks)

1.      Narrate the ethical issues  related to advertising and means to prevent such incidents

2.      Explain ethical guidelines for information technology

3.      Discuss the virtue theory of ethics

 

Part – C

(Compulsory Question @ 10 marks)

[Read the case study given and answer the questions below it; each question carry 2 marks]

Enron was formed in 1985 following a merger between Houston Natural Gas Company and Omaha-based Inter North Incorporated. Following the merger, Kenneth Lay, who had been the chief executive officer (CEO) of Houston Natural Gas, became Enron's CEO and chairman. Lay quickly rebranded Enron into an energy trader and supplier. Deregulation of the energy markets allowed companies to place bets on future prices, and Enron was poised to take advantage. In 1990, Lay created the Enron Finance Corporation and appointed Jeffrey Skilling, whose work as a McKinsey & Company consultant had impressed Lay, to head the new corporation. Skilling was then one of the youngest partners at McKinsey.

Enron created Enron Online (EOL) in Oct. 1999, an electronic trading website that focused on commodities. Enron was the counterparty to every transaction on EOL; it was either the buyer or the seller. To entice participants and trading partners, Enron offered its reputation, credit, and expertise in the energy sector. Enron was praised for its expansions and ambitious projects, and it was named "America's Most Innovative Company" by Fortune for six consecutive years between 1996 and 2001.

One of the many unwitting players in the Enron scandal was Blockbuster, the former juggernaut video rental chain. In July 2000, Enron Broadband Services and Blockbuster entered a partnership to enter the burgeoning VOD market. The VOD market was a sensible pick, but Enron started logging expected earnings based on the expected growth of the VOD market, which vastly inflated the numbers.

By mid-2000, EOL was executing nearly $350 billion in trades. When the dot-com bubble began to burst, Enron decided to build high-speed broadband telecom networks. Hundreds of millions of dollars were spent on this project, but the company ended up realizing almost no return. When the recession hit in 2000, Enron had significant exposure to the most volatile parts of the market

 CEO Jeffrey Skilling hid the financial losses of the trading business and other operations of the company using mark-to-market accounting. This technique measures the value of a security based on its current market value instead of its book value. This can work well when trading securities, but it can be disastrous for actual businesses. In Enron's case, the company would build an asset, such as a power plant, and immediately claim the projected profit on its books, even though the company had not made one dime from the asset. If the revenue from the power plant was less than the projected amount, instead of taking the loss, the company would then transfer the asset to an off-the-books corporation where the loss would go unreported. This type of accounting enabled Enron to write off unprofitable activities without hurting its bottom line. The company's employees were big Star Wars fans and named some of their such special purpose vehicles after Star Wars characters and themes

Skilling instituted the performance review committee (PRC), which became known as the harshest employee-ranking system in the country. It was known as the “360-degree review” based on the values of Enron—respect, integrity, communication and excellence (RICE). However, associates came to feel that the only real performance measure was the amount of profits they could produce

The mark-to-market practice led to schemes that were designed to hide the losses and make the company appear more profitable than it really was. To cope with the mounting liabilities, Andrew Fastow, a rising star who was promoted to chief financial officer in 1998, developed a deliberate plan to show that the company was in sound financial shape despite the fact that many of its subsidiaries were losing money. The mark-to-market practice led to schemes that were designed to hide the losses and make the company appear more profitable than it really was.

CEO Kenneth Lay had retired in February, turning over the position to Jeffrey Skilling. In August 2001, Skilling resigned as CEO citing personal reasons. Sherron Whatkins, the Vice President of Enron Corporation alerted then-CEO Ken Lay in August 2001 to accounting irregularities within the company, Around the same time, analysts began to downgrade their rating for Enron's stock, and the stock descended to a 52-week low of $39.95. By Oct. 16, the company reported its first quarterly loss and closed its "Raptor" SPV. This action caught the attention of the SEC. At Enron's peak, its shares were worth $90.75; just prior to declaring bankruptcy on Dec. 2, 2001, they were trading at $0.26.

A major player in the Enron scandal was Enron's accounting firm Arthur Andersen LLP and partner David B. Duncan, who oversaw Enron's accounts. As one of the five largest accounting firms in the United States at the time, Andersen had a reputation for high standards and quality risk management.

 

1.      State the significance of the Business Ethics in the light of Enron incident given above

2.      What unethical practice did you observe in which functional area of business by Enron Company?.

3.      What is “SPV”

4.      Examine the Teleological Theories of Ethics in the background of the Enron scandal

5.      What is whistle blowing? How did it happen in the case of Enron? Name the whistle blower of Enron scandal?

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