i put a 21" on my RK, best thing i ever did to it IMO, handled so much better turning in etc but you need to do it properly or it will ride badly and look even worse.
you will need to fit a drop in 2" fork lowering kit to bring the front end back in line or the bike wont handle nicely at all
make sure you get a 3.5" rim, that way you will get the same contact patch as you do with the current 16" the 120 tyre is stretched but is fine
yes you can use your stock front mudguard, enlarge the mounting holes so you can manipulate it a little if you need to.