NARRBEGIN: MakeStuff Company MakeStuff Company

NARRBEGIN: MakeStuff Company
MakeStuff Company
The MakeStuff Company's earnings stream is highly dependent on the cost of a key commodity input.Management believes taxable earnings will be $100,000 if the input price is low,taxable earnings will be $50,000 if the input price is at a moderate level,but earnings will be zero if the input price is high.Management sees these outcomes as being equally likely.The company pays a 15% tax rate on the first $50,000 of taxable earnings,and a 25% rate on all earnings above $50,000.
-What is MakeStuff's after-tax earnings if it can lock in the moderate price level for sure?

A) $50,000
B) $42,500
C) $80,000
D) $40,333