A U.S. company performs a quantitative analysis of the suffiiency of a newly-formed special purpose entity's equity to absorb expected losses. The SPE was formed with $12,125 in equity and $107,875 in debt, for a total fair value of $120,000. Assume the SPE's expected net cash inflows all occur at the end of one year. Expected cash flows and probabilities are:

Expected net cash flow	Probability
$195,000	0.50
58,500	0.40
39,000	0.10

The U.S. company uses a risk-adjusted discount rate of 4 percent to determine the present value of cash flows. The SPE's expected losses are

A) $8,250

B) $25,500

C) $60,000

D) $33,750