Samsung Electronics has ordinary shares amounting to ₩2,500,000,000 and 8% debentures of ₩700,000,000. LG Electronics has ordinary shares worth ₩2,000,000,000 and 10% debentures of ₩900,000,000. Panasonic Corporation's capital structure includes ¥1,800,000,000 in ordinary shares and ¥1,000,000,000 in 9% debentures.

In 2010, the return on capital employed for each firm was 20%, and in 2011 it was 10%. Corporation tax in both years was assumed to be 50%, and debenture interest is an allowable expense against corporation tax.

(a) Calculate the percentage return on the shareholders' capital for each company for 2010 and 2011. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.