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This video tutorial discusses incremental analysis for deciding whether to replace or retain equipment. It emphasizes comparing variable manufacturing costs and the cost of new equipment. The book value of the old machine is treated as a sunk cost, meaning it should not influence the decision, as it cannot be altered by current or future actions. Additionally, book value is defined as the original cost of equipment minus accumulated depreciation. If the equipment is eliminated without any trade-in value, the book value results in a loss on the income statement. Ultimately, both retaining and replacing equipment can similarly impact the financial statement.