Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£800	£550	£200
12% debentures	£0	£350	£450
Total	£800	£900	£650

The return on capital employed was 30% for each firm in 2093, and in 2094 was 24%. Corporation tax in both years was assumed to be 10%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2093 and 2094. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.