$4.$ Adjusting WACC when the project is financed with different debt ratios

In Part $2,$ we assume that Sangria's crusher project is financed in the same debt$$equity ratio as the company as a whole $(40\%$ debt ratio$).$ What if that is not true? For example, what if Sangria's perpetual crusher project supports only $20\%$ debt, versus $40\%$ for Sangria overall?

Moving from $40\%$ to $20\%$ debt may change all the inputs to the WACC formula. Obviously the financing weights change. But the cost of equity RE is less, because financial risk is reduced. The cost of debt may be lower too, but here we assume it stays at $6\%$ when the debt ratio is $20\%.$

Recall from Question $1$ that Sangria$$s cost of equity at $40\%$ debt ratio is $12\mathrm{.}4\%.$

Formula:

Return on asset: RA $=$ D$/$V $*$ RD $+$ E$/$V $*$ RE

Return on equity: RE $=$ RA $+($RA $$ RD$)*$ D$/$E

Question $4$: What is appropriate discount rate for Sangria's crusher project if it supports only $20\%$ debt ratio?