Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£900	£500	£150
10% debentures	£0	£400	£450
Total	£900	£900	£600

The return on capital employed was 20% for each firm in 2029, and in 2030 was 10%. Corporation tax in both years was assumed to be 35%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2029 and 2030. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.