Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£700	£500	£100
8% debentures	£0	£300	£500
Total	£700	£800	£600

The return on capital employed was 24% for each firm in 2047, and in 2048 was 16%. Corporation tax in both years was assumed to be 25%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2047 and 2048. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.