Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£800	£600	£150
10% debentures	£0	£400	£500
Total	£800	£1,000	£650

The return on capital employed was 37% for each firm in 2107, and in 2108 was 31%. 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 2107 and 2108. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.