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The employee's salary at the end of the second year with the company will be $41,200.
Starting salary: $40,000
Salary increase after the first year: $40,000 * 3% = $1,200
Salary after the first year: $40,000 + $1,200 = $41,200
Salary increase after the second year: $41,200 * 3% = $1,236
Salary after the second year: $41,200 + $1,236 = $42,436
Therefore, the correct response is $41,200.