Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£850	£500	£150
10% debentures	£0	£400	£450
Total	£850	£900	£600

The return on capital employed was 35% for each firm in 2103, and in 2104 was 29%. Corporation tax in both years was assumed to be 20%, and debenture interest is an allowable expense against corporation tax.

Required:

(a) Calculate the percentage return on the shareholders’ capital for each company for 2103 and 2104. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.