Like anything, projects do have risks. There are three types of project risks associated with capital budgeting:
1. Stand-alone risk
2. Corporate risk
3. Market risk
1.Stand-Alone Risk This risk assumes the project a company intends to pursue is a single asset that is separate from the company's other assets. It is measured by the variability of the single project alone. Stand-alone risk does not take into account how the risk of a single asset will affect the overall corporate risk.
2.Corporate RiskThis risk assumes the project a company intends to pursue is not a single asset but incorporated with a company's other assets. As such, the risk of a project could be diversified away by the company's other assets. It is measured by the potential impact a project may have on the company's earnings.
3.Market RiskThis looks at the risk of a project through the eyes of the stockholder. It looks at the project not only from a company's perspective, but from the stockholder's overall portfolio. It is measured by the effect the project may have on the company's beta.
Read more: http://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/types-of-risk.asp#ixzz1yhCYuBuY
