You have multiple options for replacing a Volvo s40 key fob, however without more information about your specific vehicle I'm not able to give you more information about the cheapest one. You can read more about cheap replacements for a lost or broken key fob here.
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The first thing is to make sure the system is bled properly and there is no air in it to cause a soft, sinking pedal. Your mechanic might well be correct, that it is a master cylinder problem, but I would be checking the brake booster.
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The Volvo S40 1999 prices range from $3,850 for the basic trim level Sedan 1.8 to $7,480 for the top of the range Sedan T4 Se.