40% Channel Utilization on 1Mb Satellite
Let's see, it takes 500 bytes * 8 bits/byte / 1E6 bits/second = 4 ms to send a frame.

If the round-trip delay is 270 + 270 = 540 ms, then you'll have 540 / 4 = 135 frames "in flight" before the first one is acknowledged.

You need enough bits in the frame number to count at least this high, so you need 8 bits.

It looks to me like you're both wrong.

EDIT: Sorry, that was for 100% utilization. If you only need 40% utilization, then you only need enough frames to fill 40% of the round-trip delay, which would be 540 ms * 40% = 216 ms, which would then be 216 ms / 4 ms = 54 frames. You'll need 6 bits to count this many frames.