The term <em>it's</em> is an abbreviation of "it is", placing that in the sentence, "Devon's car lost <em>it's</em> muffler somewhere on the freeway", would make no sense. However, placing the word <em>its</em> does indeed work, "Devon's car lost <em>its</em> muffler somewhere on the freeway". Therefore, <em>its</em> would be the correct answer.