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The video tutorial discusses incremental analysis for deciding whether to retain or replace equipment. It focuses on comparing costs related to the two options, specifically looking at variable manufacturing costs and the cost of new equipment. The book value of the old machine is identified as a sunk cost, meaning it does not influence current decision-making since it cannot be changed by future actions. Book value is defined as the original cost of the equipment minus its accumulated depreciation. If the equipment is eliminated without any trade-in value, the book value results in a loss on the income statement, similar to depreciation, with both scenarios impacting the financial statement equally.