Procter & Gamble has issued $2,500,000 in ordinary shares and $1,000,000 in 9% debentures. Unilever PLC has $2,000,000 in ordinary shares and $800,000 in 11% debentures. Johnson & Johnson has $1,800,000 in ordinary shares and $700,000 in 10% debentures.

In 2015, the return on capital employed for each firm was 18%, and in 2016 it was 12%. Corporation tax in both years was assumed to be 48%, and debenture interest is an allowable expense against corporation tax.

(a) Calculate the percentage return on the shareholders' capital for each company for 2015 and 2016. Assume that all profits are distributed. (b) Analyze the advantages and disadvantages of high gearing for these companies.