Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£900	£600	£150
8% debentures	£0	£400	£500
Total	£900	£1,000	£650

The return on capital employed was 31% for each firm in 2095, and in 2096 was 25%. 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 2095 and 2096. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.