tools.economics.annuity()

Complexity

Conditions

8

Size

Total Lines	65
Code Lines	15

Duplication

Lines	0
Ratio	0 %

Importance

Changes

0

# -*- coding: utf-8 -*-
def annuity(capex, n, wacc, u=None, cost_decrease=0):
    r"""Calculates the annuity of an initial investment 'capex', considering
    the cost of capital 'wacc' during a project horizon 'n'

    In case of a single initial investment, the employed formula reads:

    .. math::
        \text{annuity} = \text{capex} \cdot
            \frac{(\text{wacc} \cdot (1+\text{wacc})^n)}
            {((1 + \text{wacc})^n - 1)}

    In case of repeated investments (due to replacements) at fixed intervals
    'u', the formula yields:

    .. math::
        \text{annuity} = \text{capex} \cdot
                  \frac{(\text{wacc} \cdot (1+\text{wacc})^n)}
                  {((1 + \text{wacc})^n - 1)} \cdot \left(
                  \frac{1 - \left( \frac{(1-\text{cost\_decrease})}
                  {(1+\text{wacc})} \right)^n}
                  {1 - \left(\frac{(1-\text{cost\_decrease})}{(1+\text{wacc})}
                  \right)^u} \right)

    Parameters
    ----------
    capex : float
        Capital expenditure for first investment. Net Present Value (NPV) or
        Net Present Cost (NPC) of investment
    n : int
        Horizon of the analysis, or number of years the annuity wants to be
        obtained for (n>=1)
    wacc : float
        Weighted average cost of capital (0<wacc<1)
    u : int
        Lifetime of the investigated investment. Might be smaller than the
        analysis horizon, 'n', meaning it will have to be replaced.
        Takes value 'n' if not specified otherwise (u>=1)
    cost_decrease : float
        Annual rate of cost decrease (due to, e.g., price experience curve).
        This only influences the result for investments corresponding to
        replacements, whenever u<n.
        Takes value 0, if not specified otherwise (0<cost_decrease<1)
    Returns
    -------
    float
        annuity
    """
    if u is None:
        u = n

    if (
        (n < 1)
        or (wacc < 0 or wacc > 1)
        or (u < 1)
        or (cost_decrease < 0 or cost_decrease > 1)
    ):
        raise ValueError("Input arguments for 'annuity' out of bounds!")

    return (
        capex
        * (wacc * (1 + wacc) ** n)
        / ((1 + wacc) ** n - 1)
        * (
            (1 - ((1 - cost_decrease) / (1 + wacc)) ** n)
            / (1 - ((1 - cost_decrease) / (1 + wacc)) ** u)
        )