Three companies have the capital structures shown below.

Company	A	B	C
Ordinary shares	£900	£500	£200
8% debentures	£0	£400	£450
Total	£900	£900	£650

The return on capital employed was 38% for each firm in 2109, and in 2110 was 32%. 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 2109 and 2110. Assume that all profits are distributed. (b) Use your answer to explain the merits and dangers of high gearing.