Bad valves can cause no compression. If you really want to make sure the valves are bad Eric made a great video about how to perform a leak down test. With this test you will know exactly why there is no compression in a motor (blown piston rings, bad exhaust or intake valves.).
http://www.youtube.com/watch?v=WgrfT0LFMhc
400 dollars for labor is reasonable since I’ve heard labor for just a valve check (even if there is no adjustment necessary) can range in that price.