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This video tutorial discusses incremental analysis for deciding whether to retain or replace equipment. It emphasizes comparing relevant costs, primarily focusing on variable manufacturing costs and the cost of new equipment. The book value of the old machine is highlighted as a sunk cost, which does not influence current or future decisions. The book value is the original 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. Ultimately, both retaining and replacing equipment can have similar impacts on the income statement, depending on these considerations.