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The video tutorial covers incremental analysis for the decision of whether to retain or replace equipment. It emphasizes comparing costs associated with both options, focusing on relevant factors such as variable manufacturing costs and the cost of new equipment. The book value of the old machine is identified as a sunk cost, which should not influence the decision, as it cannot be altered by current or future choices. Book value is defined as the cost of the equipment minus accumulated depreciation. If the equipment is eliminated without trade-in value, the book value results in a loss on the income statement, reflecting the same financial impact as depreciation.