---
title: "Purchase or lease of equipment"
subject: "Construction Management"
chapter: 4
key: "semester_8/construction_management:purchase-lease-equipment"
source: https://www.bctengineer.com/q/semester_8/construction_management/purchase-lease-equipment
site: BCT Engineering
---

# Purchase or lease of equipment

Construction Management · Chapter 4: Familiarization with Construction Equipments

- Asked in: 2069 Bhadra (old course), 4 marks
- Video: [How Does Equipment Leasing Work?](https://www.youtube.com/watch?v=H6xXORaU7Jo) — Joe Camberato
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/purchase-lease-equipment
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-4

## Question

Write a short note on purchase or lease of equipment.

## Short answer

Purchase gives ownership and lower hourly cost at high continuous use, but needs large capital and carries depreciation and idle-cost risk. Lease is a long-term rental with regular payments, no big outlay and latest technology, but total cost exceeds purchase and ownership is absent. Hire suits short occasional work; compare owning and operating cost against lease or hire at expected utilisation.

## Answer

A contractor can obtain construction equipment by purchase, lease, or hire (rent).

#### Purchase
- The contractor owns the machine; it is suitable where utilisation is high and continuous over a long period.
- Merits: full control, lower cost per hour at high use, resale value, and tax benefit on depreciation.
- Demerits: heavy initial investment, depreciation, repair and maintenance cost, idle cost when there is no work, and risk of obsolescence.

#### Lease
- A long-term contract where the lessor owns the machine and the contractor pays regular rent; at the end it may be returned or bought (finance lease, operating lease).
- Merits: no large capital outlay, the latest technology, and fixed monthly payments; maintenance may be included.
- Demerits: total payments exceed the purchase price in the long run; the contractor does not own the machine; there are lease conditions.

#### Hire (rental)
Short-term use by the day, hour or month; suited to occasional or short-duration work.

#### Decision
Compare the owning cost per hour (depreciation, interest, insurance, tax, storage) plus operating cost (fuel, repair, operator) with the lease or hire cost at the expected utilisation. Buy if the use is high and long, lease or hire if the use is low or the job is short. Other factors include the availability of capital, local dealer support, and the contractor's future work.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. When is purchase suitable?
   A. Short job
   B. High continuous utilisation over a long period
   C. Occasional short use
   D. No capital
   Answer: B. Ownership suits high long use. (Key point: Buy when)

2. What is a lease merit?
   A. No large capital outlay and latest technology
   B. Ownership
   C. Lower total cost
   D. No payments
   Answer: A. Lease avoids big capital outlay. (Key point: Lease)

3. How is the choice decided?
   A. By colour
   B. By brand
   C. Randomly
   D. Compare owning cost per hour plus operating cost with lease/hire cost at expected utilisation
   Answer: D. Compare hourly costs at expected utilisation. (Key point: Decision)

## Related in Construction Management

- [Valuation of a cinema hall (land Rs 15 lakh)](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-cinema-hall-2077) — Construction Management, chapter 13, asked 2×
- [Fair market value of Tata Sipradi showroom](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-tata-sipradi-showroom) — Construction Management, chapter 13

## Related in other subjects

- [Purchase or hire construction equipment](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Apurchase-or-hire-equipment-1000000) — Engineering Economics, chapter 4
- [Tender call for IT equipment](https://www.bctengineer.com/question.md?key=semester_5%2Fcommunication_english%3Atender-call-it-equipment) — Communication English, chapter 4
- [Invitation for tender for lab equipment](https://www.bctengineer.com/question.md?key=semester_5%2Fcommunication_english%3Ainvitation-tender-chemistry-lab) — Communication English, chapter 4