a. Define "Gearing" and then advise the company with the highest gearing on how it can lower its gearing position.

b. Why would this company want to lower its gearing position?

The following items have been taken from the Balance Sheets of two public limited companies, BMW Motors and Mercedes Motors, which are giants and fierce competitors in the motor manufacturing industry. Both have identical capitalisation of $651 million. MERCEDES BMW Debentures 20,000,000 199,000,000 Reserves 280,000,000 56,000,000 Bank Loan - 9 years 1,000,000 9,000,000 Ordinary Shares 240,000,000 139,000,000 Preference Shares 110,000,000 248,000,000 651,000,000 651,000,000