Answer:
1.74%
Explanation:
                                17% Debt       50% Debt
Sales                      $500,000      $500,000
Less: Cost              $450,000      $450,000
Less: Interest         <u>$5,546</u>           <u>$17,400</u>
Profit before tax   $44,454        $32,600
Less: Tax at 35%  <u> $15,559</u>          <u>$11,410</u>
Net Income           <u> $28,895</u>        <u>$21,190</u>
Equity                     $361,050        $217,500
Return on Equity   8.00%             9.74%
Change in ROE = 9.74% - 8.00% = 1.74%
Workings
Interest (17% Debt) = 43,500*17%*7.5% = $5,546
Interest (50% Debt) = 43,500*50%*8% = $17,400
Tax (17% Debt) = $44,454 * 0.35 = 15,559
Tax (50% Debt) = $32,600 * 0.35 = 11,410
Equity (17% Debt) =435,000*83% = 361,050        
Equity (50% Debt) = 435,000*50% = $217,500
Return on Equity = $28,895/$361,050 = 8.00%
Return on Equity = $21,190/$217,500 = 9.74%