Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£750	£550	£200
12% debentures	£0	£350	£450
Total	£750	£900	£650

The return on capital employed was 36% for each firm in 2105, and in 2106 was 30%. 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 2105 and 2106. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.