Zipco is a firm that faces a $5$ percent chance of suffering a $$20$ million

lawsuit and a $95\%$ chance of incurring no lawsuit in the next year.

Zipco$$s taxable earnings are expected to equal $$10$ million in current year

if it does not have to pay the lawsuit. Zipco$$s earnings will be taxed at

a $34$ percent tax rate if pretax earnings are positive. Zipco will incur

no tax liability if its income is negative. Zipco can either buy

liability insurance $($for a price equal to the expected loss$)$ to cover the

loss in full or retain the risk. Indicate which of the two alternatives

will result in the highest expected after$-$tax earnings, providing

numerical support for your answer by calculating the difference in the

expected after$-$tax earnings between the two alternatives.