Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£750	£500	£100
10% debentures	£0	£350	£500
Total	£750	£850	£600

The return on capital employed was 23% for each firm in 2065, and in 2066 was 15%. 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 2065 and 2066. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.