Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£750	£600	£100
12% debentures	£0	£400	£500
Total	£750	£1,000	£600

The return on capital employed was 25% for each firm in 2059, and in 2060 was 15%. Corporation tax in both years was assumed to be 30%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2059 and 2060. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.