projection data is made by the licensee and would not be generally known to the licensor, and thus, the asking royalty of 4% on sales becomes the licensor's bench-mark for negotiation. The sales value data shown in the table is not relevant to the calculation of LSEP. It is, however, an estimation the licensor would need to know or make to evolve a suitable royalty rate. A 4% royalty on sales value for a 5-year period of the license, together with a lump-sum payment of $32000 (risk-free income) on execution of the license is then the 'asking price' in the example. The TTF of this projection is 2.6, implying that for every dollar of royalty paid, the OP to the licensee enterprise is multiplied by this factor. Normal project calculations look beyond the royalty-bearing period evaluating both the NPV and the <IRR> Internal rate of return of the enterprise. The discount rate The 'discount rate' used in capitalization of flows estimates the element of accepting risk in the projection of costs and incomes. Without risk, the future income is a certainty. In a live environment, risks arise from unexpected competition, infringement, invalidation and loss of trade secrets, political and economic risks, etc. This affects both parties to the contract. In the presence of such risks, discount rates are higher than the bank interest rate and are based on the expected Beta coefficient - the dependence of a risk in one aspect to the risk in another. With high discount rates, sales that occur far in the future have little effect on the expected incomes. Typically, risk is assumed at 10%. Whether the actual risk is higher or lower than this figure becomes a factor of the negotiation process; for instance, the seller of a technology may consider the risk of obsolescence low whereas the opposite party may consider it high. Royalty rate expressions Royalty in licence agreements is always in consideration of something that is provided by the licensor to the licensee in the agreement, such as the right to use a trademark, patent, know-how, designs, drawings or a combination of them. Royalty payments take three basic forms: 'running' royalties 'lumpsum' royalty running royalties together with lump-sum royalties Any payment should be related to: the specific entity of the license that bears the royalty the unit-base on which the royalty is applicable (e.g. per kilogram of product) the period over