variously distributed incomes and costs by 'discounting' them to their 'present value' (PV). That is, an income at a future date has a lower certainty than an immediate income by its assumed rate of risk. If $0.9091 is banked today at an interest rate of 10%, its value at the end of a year would be $1.00. Conversely, $1.00 received (or spent) one year from now is equivalent to its Present Value of $0.9091. It is said that the discounted value of $1.00 one year from now is equal to $0.9091 at a discount rate of 10%. Similarly, $0.8264 is the PV of $1.00 receivable two years from today at the 10% rate. The term 'interest rate' used above is an approximation for the economist's discount rate (see below) . It is not the inflation rate or the bank rate but the latter are parts of it. The discount factors (DF) of 0.9091,0.8264, etc. are generated from the 'compound interest' formula: DF = 1/ (1+ r)n where r is the discount rate n is the forward year from current day = 0 It then becomes possible to reformulate a stream of profits and royalties to their PVs. The sum of PVs results in the Net Present Value (NPV). Only OPR and R for each year are needed to obtain LSEP and TTF. Table B illustrates this methodology for evaluating the projected LSEP of an enterprise, where royalty has been made applicable for a period of 5 years. The discount rate applied is 10%. {| class="wikitable" |+ Table B. Illustrative Projected Flows of OP and Royalty of an Enterprise [Unit:$000] | Year --> ! 1 ! 2 ! 3 ! 4 ! 5 |- | Sales ! 700 ! 900 ! 1200 ! 1600 ! 2200 |- | OPR ! 75 ! 105 ! 130 ! 200 ! 280 |- | Royalty ! 60 ! 36 ! 48 ! 64 ! 88 |- | Discount Factor,10% ! 0.9091 ! 0.8264 ! 0.7531 ! 0.6830 ! 0.6209 |- | Discounted OPR ! 68.2 ! 86.8 ! 97.7 ! 136.6 ! 173.9 |- | Discounted R ! 54.5 ! 29.8 ! 36.1 ! 43.7 ! 54.6 |} The NPVs of OPR and R are $563,100 and $218,700,respectively, and thus, the projected LSEP is 0.28 i.e. the licensee shares 28% of the profits of the enterprise with the licensor over the five-year period. Profit