First, you haven't indicated that you've considered the actual time value of money, which is a critical component of NPV analysis. Actually, it seems that you have only considered a 'cash payback model', because you're saing that earning 120k off 100k of inventory will pay for itself in 5 years [20k cash returned per year, above the initial inventory costs]. Once you factor in the fact that your initial purchase of inventory happens today, and your sales revenue is received in the future, you will better understand how to consider that inventory cost.
Assume your product turnover is 1 year, you have 100k of input costs, zero fixed costs, and 120k of revenue, which you will get in 12 months. Your cash profit will be 20k in year 1. BUT - what is the 'discount rate' that you should use to reduce the value of dollars received in 12 months vs dollars spent today? One method is to use the rate you would get on other investments / the rate you would need to pay in interest costs to borrow funds. ie: if you have the ability to earn 4% in interest, you could call your discount rate 4%.
Plug those numbers into a financial calculator, and earning 120k in 12 months after putting in 100k total costs today, would be worth 115,384. You can test the math quickly by saying: 115,384 * 1.04 = 120k, meaning 115k in a bank account earning 4% interest would be worth 120k in a year. Your NPV of this is therefore 115,384 - 100k initial investment = 15k net value.
Now, consider that 4% is not a sufficient rate to compensate you for the risk you are taking. 100k in a government-insured bank account has no risk [government collapse aside], so to engage in a risky venture, you should expect to earn more. Maybe 10% would be appropriate, maybe 20% would be appropriate.
If you assume 20% return would be worth it to compensate you for the risk you are taking, then 100k today would earn you 20k in interest over 12 months, and therefore your NPV in such a scenario would be $0. Counterintuitively, this doesn't mean "not worth it", it means "exactly worth it for the amount of risk I am taking".
Now if you expect to turnover, say, once a quarter, then your 'cash profits' would be 20k x 4, and we can simplistically assume you are able to use the profits from each turnover to pay for the next round of inventory. So, your cashflow pattern would be:
Today: - 100k
3 months from now: +20k
6 months from now: +20k
9 months from now: +20k
12 months from now: +20k
The simplest way to consider the ongoing in/out of the money would be to just take 1 year as a natural starting point. So, your final cashflow in 12 months would be +120k, representing that you will not be rebuying your inventory to sell again.
If you plug those dates into a financial calculator with a required return of 4%, you get a PV of all inflows of 174k [ie: not worth the full 180k in cash, because the money is received over time instead], which is 74k higher than your initial inventory cost, so an NPV of 100k. Using a rate of 20%, you get PV of 153k, which would be NPV of 53k.
An even more simplistic approach you could use to wrap your head around this, would be just to include a line item in your cash flow analysis called 'interest payment', like "100k * 4% interest = 4k in lost value". Remember that 4% would not be compensating you for the risk of the business, just the barest minimum form of lost opportunity cost.
In short, one way or another, you need to consider the opportunity cost of not having your cash tied up in this investment, as well as the risk factor of running a business.