Question

MotoWin Auto Superstore is thinking about offering a two-year limited warranty for $934 on all new cars of a certain model. The terms of the warranty would be that MotoWin would replace the car free of charge under certain, specified conditions. Replacing the car in this way would cost MotoWin $12,100. Suppose that under the warranty, there is an 8% chance that MotoWin would have to replace the car one time and a 92% chance they wouldn't have to replace the car. If MotoWin knows that it will sell many of these warranties, should it expect to make or lose money from offering them? How much?

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