In order to extend the keyway smoothly:
1. Orient the shaft so the keyway is vertical by inserting a key, and using an accurate bubble level. Insert the key in all 4 orientations, and if they don't all agree, then level it to the orientation that's somewhere in the middle.
2. Program a toolpath that goes up one side, makes a semi-circle, and comes back down the other with an undersize endmill, leaving .005" on each side. Nibble it down in Z until the floor blends in.
3. Adjust your endmill geometry a half-thou at a time until the sides blend in. If both sides blend in simultaneously, congratulations, your touch off was perfect. If one side blends in first, just move your G54 towards the other side until it blends in too.
This is a lot more love than a simple keyway usually deserves, but it's the only way I've been able to extend one so it looks and functions perfectly. In my case it was well worth it for the large berylium copper part with a weeks worth of machine time in it. $$$.
What to charge? this is definitely more for the learning experience. You can't make a reasonable wage for this work, so just charge him half the cost of a new shaft. Good deal for him, and it pays for your cutters.