Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£700	£450	£200
8% debentures	£0	£300	£400
Total	£700	£750	£600

The return on capital employed was 28% for each firm in 2055, and in 2056 was 20%. Corporation tax in both years was assumed to be 5%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2055 and 2056. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.