Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£850	£600	£200
12% debentures	£0	£400	£500
Total	£850	£1,000	£700

The return on capital employed was 22% for each firm in 2051, and in 2052 was 13%. 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 2051 and 2052. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.