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This video tutorial explains incremental analysis for deciding whether to retain or replace equipment. It emphasizes comparing relevant costs between the two options, focusing on variable manufacturing costs and the cost of new equipment. The book value of the old machine, considered a sunk cost, is highlighted as irrelevant to the decision since it cannot be changed by current choices. Book value refers to the equipment's cost minus its accumulated depreciation. If the equipment is eliminated without trade-in value, the remaining book value results in a loss on the income statement. The tutorial concludes that both retaining and replacing equipment can similarly impact the income statement.
