Q.33 - Q.35 are based on the following information:

Garven Corp plans to sell a machine with a 1-year warranty to J.R. Inc. There is a 2% probability

Garven will lose a $1,000,000 lawsuit in the coming year. If this happens, Garven will go bankrupt

and will not provide any warranty services to J.R.. Because J.R. views purchasing the machine from

Garven is risky, J.. will only pay $10,000 for the machine.

If Garven purchases a $1,000.000 liability insurance for $25.000. Garven is able to provide the

promised warranty services to J.R. for sure in the next year. In this case, J.R. will pay $17,000 for

the machine.

What is Garven's net increase in the expected cash flow with this liability insurance? (Ignore the

cost of warranty services incurred by Garven.)

O 1,500.

1,000.

O 2,500.

2.000.