Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£850	£500	£150
10% debentures	£0	£350	£450
Total	£850	£850	£600

The return on capital employed was 22% for each firm in 2061, and in 2062 was 14%. 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 2061 and 2062. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.