Hi,

Is this kind of setup possible on one server?

Yes, you can have multiple subscribers per publication

If yes then at the time of reinitialization is it going to apply the snapshot on DB_B as well as DB_C?

Yes

Also let say if due to disk error DB_B gets corrupted then will data be still replicated between DB_A and DB_C? (Assuming publisher, subscriber 1 and 2 are sitting on individual disks)

Yes, although the replicated commands & log file will build up on DB_A until they're published to DB_B or you delete the subscription on DB_B.