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What are the challenges of estimating cost of capital for a project taken by a division...

What are the challenges of estimating cost of capital for a project taken by a division in a multi-divisional firm, such as Disney, that do not exist when estimating cost of capital of the firm itself (here, Disney)? How would you deal with these challenges (at least discuss two such challenges)?

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(A) Capital structure and WACC: The capital structure of a division could be different from firm, hence the WACC of firm might not be applicable to the dividend. The division might be financed through a different mix of capital. To deal with this, the management can predict the capital structure in advance before starting the division and calculate WACC based on that structure.

(B) Rate of loan/ capital : Company has to predict beforehand the rate at which they would be able to get the loan or Equity for the new division. If the company wants to estimate WACC today, its difficult to predict the rate at which they would be able to procure the loan in the future. To overcome this, they can enter in to a loan agreement today with a bank on fixed rate basis. Forward contract and other hedge options can help them fix the rates beforehand.

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