Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£700	£400	£150
12% debentures	£0	£250	£450
Total	£700	£650	£600

The return on capital employed was 30% for each firm in 2025, and in 2026 was 20%. Corporation tax in both years was assumed to be 40%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2025 and 2026. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.