Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£800	£500	£200
10% debentures	£0	£400	£450
Total	£800	£900	£650

The return on capital employed was 32% for each firm in 2097, and in 2098 was 26%. Corporation tax in both years was assumed to be 35%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2097 and 2098. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.