Which of the following is true about size disparity in project evaluation?

Size disparity in project evaluation often arises when comparing mutually exclusive projects that have significantly different scales or costs. The essence of this concept is that decision-makers may struggle to choose between projects not only due to differences in their net present value (NPV) but also because larger projects may present bigger potential returns while also carrying larger risks. This situation complicates the decision-making process, as the choice isn't solely based on financial metrics like NPV but also involves considerations about the scale and context of the projects at hand.

When comparing projects of unequal costs, decision-makers must be cautious as the higher cost project could skew the results even if the NPV does not necessarily favor it. There are nuances to consider, such as the impact of capital allocation and risk exposure. This complexity highlights why size disparity poses a significant challenge when evaluating and comparing projects, ultimately influencing how choices are made among mutually exclusive options.

In contrast, the other options do not directly address the complications brought about by size disparity as successfully as this one. While the profitability index might be a tool used to evaluate projects, it doesn’t inherently resolve the issue of size disparity. Similarly, ensuring equal treatment of project costs and benefits is more about establishing fair valuation criteria rather than addressing decision-making complications. Lastly