Sage Hill Inc. owns $25\%$ of the common shares of Sheffield Corp. The other $75\%$ of the shares are owned by the Sheffield family. Sage

Hill acquired the shares eight years ago through a financing transaction. Each year, Sage Hill has received a dividend from Sheffield.

Sheffield has been in business for $60$ years and continues to have strong operations and cash flows. Sage Hill must determine the fair

value of this investment at its year end. Since there is no market on which the shares are traded, Sage Hill must use a discounted cash

flow model to determine fair value.

Sage Hill management intends to hold the shares for $5$ more years, at which time they will sell the shares to the Sheffield family under

an existing agreement for $$1$ million. There is no uncertainty in this amount. Management expects to receive dividends of $$90,000$ for

each of the five years, although there is a $20\%$ chance that dividends could be $$45,000$ each year. The risk$-$free rate is $3\%$ and the risk$-$

adjusted rate is $5\%.$

What is the fair value of the investment using the expected cash flow approach $($ use $5$ decimal places for calculations$)$