Expected cash flow approach.

Kingbird Inc. owns 25% of the common shares of Ayayai Corp. The other 75% of the shares are owned by the Ayayai family. Kingbird acquired the shares eight years ago through a financing transaction. Each year, Kingbird has received a dividend from Ayayai. Ayayai has been in business for 60 years and continues to have strong operations and cash flows. Kingbird must determine the fair value of this investment at its year end. Since there is no market on which the shares are traded, Kingbird must use a discounted cash flow model to determine fair value. Kingbird management intends to hold the shares for 5 more years, at which time they will sell the shares to the Ayayai family under an existing agreement for $1 million. There is no uncertainty in this amount. Management expects to receive dividends of $70,000 for each of the five years, although there is a 20% chance that dividends could be $40,000 each year. The risk-free rate is 3% and the riskadjusted rate is 5%. Calculate the fair value of the investment using the expected cash flow approach. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answers to 0 decimal places, e.g. 5,275.) Fair value of the investment $