$5.$ Risk analysis in capital budgeting

Projects differ in risk, and risk analysis is a critical component of the capital budgeting process.

Evaluating risk is an important part of the capital budgeting process. Which of the following is measured by the variability of the project$$s expected returns?

Stand$-$alone risk

Corporate, or within$-$firm, risk

Market, or beta, risk

The problem with using corporate, or within$-$firm, risk when trying to adjust for projects that are more risky or less risky than a firm$$s average project is that these adjustments are extremely subjective and difficult to justify.