The correct answer is B. 3.5 years.
The payback period is the number of years it takes to recover the initial investment. In this case, the initial investment is Rs. 200 and the full cash flow during recovery year is Rs. 400. This means that the initial investment will be recovered in 200/400 = 0.5 years. Since there are 3 prior years to full recovery, the total payback period is 0.5 + 3 = 3.5 years.
Option A is incorrect because it is the total number of years, not the payback period. Option C is incorrect because it is the number of years to full recovery, not the payback period. Option D is incorrect because it is the number of years to full recovery plus 0.5 years, which is not the payback period.