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Answer (A) is correct . The payback period for an investment, ignoring the time value of money, can be found by accumulating each year’s net cash flows until the initial investment is recovered. The amount accumulated after 3 years is $450,000. Thus, 50% of Year 4 cash flows is needed to recover the initial investment. The payback period is 3.5 years.

Answer (B) is incorrect because Four years includes the additional $50,000 of Year 4.
Answer (C) is incorrect because This many years takes the average inflow of all 8 years and divides that into the $500,000 initial investment.
Answer (D) is incorrect because Five years uses only the cash flows from the remaining 5?years.