Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£700	£500	£200
8% debentures	£0	£300	£400
Total	£700	£800	£600

The return on capital employed was 28% for each firm in 2037, and in 2038 was 22%. Corporation tax in both years was assumed to be 15%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2037 and 2038. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.