1. According to the trade-off theory, firms with high business risk should use less debt than firms with low business risk, other things equal. 2. Two firms, although they operate in different industries, have the same expected earnings per share and the same standard deviation of expected EPS. Thus, the two firms must have the same business risk. 3. Firm A has a higher degree of business risk than Firm B. Firm A can offset this by using less financial leverage. Therefore, the variability of both firms\' expected EBITS could actually be identical