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The video tutorial covers incremental analysis for deciding whether to retain or replace equipment. It emphasizes comparing costs affected by the two alternatives, specifically focusing on variable manufacturing costs and the cost of new equipment. The book value of the old machine, considered a sunk cost, is irrelevant for decision-making, as it cannot be changed by future actions. Book value is defined as the equipment's purchase cost minus accumulated depreciation. If the equipment is eliminated without receiving trade-in value, its book value results in a loss on the income statement. In this context, both retaining and replacing equipment can similarly affect the financial statements.
