After graduating with a degree in finance, you land a job at Apple as a financial analyst. The first project to which you have been assigned is the valuation of a potential acquisition target. Apple is considering widening its competition with Amazon to include big-box retail sales. To that end, Apple is exploring the purchase of a mass merchandiser that is likely to be valued at around $100 billion.

You have been asked to retrieve Apples WACC as it is often used as the appropriate discount rate when valuing acquisition targets. Sitting at a Bloomberg terminal, you pull up Apples current WACC download (screenshot below).

Before sending the WACC to your manager, you pause and ponder the following questions:

1. Is it appropriate to use Apples WACC to value this target firm?

2. Will using Apples WACC as the required return cause us to make a bad investment decision?

3. If we choose not to use Apples WACC, how can we come up with an appropriate required return for this investment?

4. What would be the most challenging aspects of running an analysis to come up with the appropriate required return?

Write a memo to the manager of your team, Emma May, that includes Apples WACC and addresses these questions.