I make a $100,000 investment, and it compounds at 18% per year for 5 years. I sell the investment at the end of year 5 and receive $228,776. We can agree that this is an18% return.
Scenario B: I make an all cash purchase of a $100,000 piece of equipment and rent it out for 5 years. I receive $18,000 at the end of years 1-5 and recoup all my principal at the end of year 5 as well. So, the last payment is $118,000. The cash received each year is deposited into a non- interest bearing checking account. The tax rate in my country is 0%. Is this an 18% return?