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The video tutorial discusses incremental analysis for deciding whether to retain or replace equipment. It emphasizes comparing costs influenced by the two options, focusing on variable manufacturing costs and the cost of new equipment. The book value of the current machine is identified as a sunk cost, meaning it doesn't impact the decision-making process because it cannot be altered by present or future actions. Book value refers to the equipment's cost 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 have similar impacts on the income statement.
