For a non-scale enhancing project, we need to find another firm which is similar to the project

(in the same business as the project).

1. Use RS of that firm to calculate R0 (hypothetical all-equity cost of capital):
RS = R0 + (B/S)×(1-TC)×(R0 - RB)  R0 = …
(with B/S is the debt-to-equity ratio of the similar firm)

2. Use this R0 to calculate RS of the project using the project’s capital structure:
RS = R0 + (B/S)×(1-TC)×(R0 - RB)
(with B/S is the debt-to-equity ratio of the project)

3. Use RS calculated in step 2 to calculate RWACC of the project:

RWACC = [B/(B+S)]RB(1-Tc) + [S/(B+S)]RS