Help with stock price / underwriting spread

[danielcole]

Tiger Golf Supplies has $18 million in earnings with 4 million shares outstanding. Its investment banker thinks the stock should trade at a P/E ratio of 32. Assume there is an underwriting spread of 7.0 percent.

What should the price to the public be? --------- I'm not sure where to start here. I thought it would be 18m*32 / 4m and then a 7% increase on price for the public. Any hints? Thanks in advance.

 

[danielcole]

In case it helps anyone else, here is how this is solved:

Earnings per share = $18 million / 4 million = $4.50

Price to the public (prior to underwriting spread)

P/E × EPS = 32 × $4.50 = $144.00