I may have missed it being stated above, but the key thing to Reactions is on page 36:,
"Units on the side without initiative (referred to as “non- initiative units”) may React to the Actions of initiative units within their line of sight." If you have initiative you cannot react.
So in the example above Friendly Squad C would not react. It would just activate after the action of Friendly Squad A and reaction of Enemy Squad B is resolved. If you wanted to have Friendly Squad C fire they would have to be put on Overwatch (page 70) at the beginning of the turn before actions start. Overwatch is what gives the initiative units the ability to interrupt the reactions of enemy units (cover advancing units).
-A