Barley Inc. just hired you as their financial analyst. The company is thinking of expanding into a new product line that requires a new piece of equipment and wants your opinion. Here's the info:

Average return in the stock market is currently $7\%.$ The risk free rate is $2\%.$ Barley Inc. has a current beta of $1\mathrm{.}25.$

Barley Inc. has one bond currently outstanding that is selling for a premium, at $110.$ The bonds have a $5\%$ annual coupon rate and pay interest annually. Assume $$1,000$ par value and $10$ years remaining to maturity.

Barley Inc. must maintain at least a $60\%$ equity to total asset ratio or face default on the bonds. The company has a $25\%$ tax rate.

The project has an initial cost of $$100,000.$ The equipment will have no salvage value at the end of the project in $5$ years.

You did a pro$-$forma income statement and came up with the following net income figures:

Year $1=5,000$

Year $2=15,000$

Year $3=25,000$

Year $4=22,000$

Year $5=26,000$

What is the payback?

a$.1\mathrm{.}8$ years

b$.2\mathrm{.}9$ years

c$.4\mathrm{.}5$ years

d$.5+$ years

e$.$ None of the above is the answer.