Your name is Joshua Tong, a fresh graduate, now working for a company, Wilson Asset Management. The operation model for Wilson Asset Management is to identify opportunities for corporations to restructure, invest significantly in the stock of the target firm and then undertake a process of persuading management and directors to restructure. You are working closely with the managing partner, Michael Wilson, on evaluating a potential target firm. 

 Michael said to Joshua: "Interest rates have reached their lowest level in the past three decades. CEOs are currently overlooking valuable prospects to enhance value for their shareholders. A case in point is Temple and Webster Group Ltd (TPW), a retail enterprise that has seen a resurgence in year-on-year growth. Its stock price has witnessed a surge over the last two years, all while maintaining a debt-free status. It's highly likely that by encouraging TPW to consider a leveraged recapitalization through means like dividends or significant share repurchases, substantial value could be achieved. Joshua, could you please work on an analysis projecting the potential impact on the company's value? Additionally, kindly gather the contact details including names and phone numbers of all the directors associated with TPW." 

 On 30 July 2021, you noted that TPW's closing share price is $11.95 and shares outstanding is 120,452,928 (obtained from Morningstar DatAnalysis database). TPW's revenues had grown by approximately 70% and 85% in year 2020 and 2021 respectively, driven by higher customer numbers and more revenue per active customer. While the firm's online home improvement industry is gaining steady competition from smaller retailers, TPW is growing market share and making larger investments in technology and data, brand awareness and private label products. 

 You also discussed with Daniel the current capital market conditions and decided to focus on the assumption that TPW could borrow $250 million at a credit rating of A with a yield of 1.91% in the current market as of 30 July 2021. Under the proposed leveraged recapitalization, TPW would borrow $250 million and use it either to pay an equivalent dividend or to repurchase an equivalent value of shares. You knew that this combination of actions could affect the firm's share value, cost of capital, EPS, and some other potential areas. 

 

What are other effects of the company issuing debt on its investors? Discuss it from the perspectives of signaling effect, bankruptcy risk, managerial incentive, and anything you think relevant. And finally, given the current position of TPW in the market, should it go ahead with debt issuance or not? Support your arguments using relevant theories of Corporate Finance.