If bankruptcy costs and/or shareholder underdiversification are an issue,what measure of risk is relevant when evaluating project risk in capital budgeting?

Question

Quizplus · Accepted Answer

Contribution-to-firm risk is the most relevant measure of risk in this case as it takes into account the impact of the project on the overall risk of the company, including the potential bankruptcy costs and shareholder underdiversification. Total project risk and systematic risk are useful measures but do not specifically address these concerns. Capital rationing risk is not directly related to the issue at hand.

If Bankruptcy Costs And/or Shareholder Underdiversification Are an Issue,what Measure