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This video tutorial explains incremental analysis for deciding whether to retain or replace equipment. It emphasizes comparing costs influenced by the two alternatives, mainly focusing on variable manufacturing costs and the new equipment's cost. The book value of the old machine is highlighted as a sunk cost, which remains unaffected by current or future decisions; it cannot change regardless of the choice made. Book value is defined as the equipment's cost minus its accumulated depreciation. If the equipment is eliminated without trade-in value, its book value results in a loss on the income statement, affecting financial reporting similarly to depreciation.
