Answer:
D. There is a tax shield on the dividends paid
Step-by-step explanation:
WACC is the weighted average cost of capital.
A. The equity component of WACC reflects the return expected by the company’s shareholders - CORRECT
The weighted average cost of capital formula has equity and cost of equity. The latter is the shareholder's required return.
B. Market values should be used in calculating WACC - CORRECT
Market values(and not Book values) of common equity, preferred shares, and debt are used in calculation os WACC.
C. Preferred equity is a separate component of WACC - CORRECT
If a company uses preferred equity in its capital structure, then it is included in the calculation of its WACC.
D. There is a tax shield on the dividends paid -INCORRECT
Tax shield only applies to interest rates paid on debt.