Good question about just how much useable HP the A4 can actually deliver to the small diameter prop on a 27.
For one data point, I have a friend that repowered his E-27, from an A4 to a single cylinder Yanmar. I recall it being about a 9 hp. He later said that, as satisfying as the conversion was, he sometimes wished he'd sprung for a twin.
My guess is that 12 to 14 hp would be ideal.
One trivia note about the Yanmar YSM12 (and other similar Yanmar's with slightly differing designations) is that this particular 12 HP engine has a single horizontal cylinder and was famous for fitting into tight spaces designed for the older flathead A4 block. OTOH it is nowadays an old engine with less parts still available each year.
I would suggest a more modern twin, like a Betamarine... but within your budget you gotta do the best you can.
Regards,
Loren
I restored the Atomic 4 to my prior E-27. Someone had pulled the A4 and put an outboard on her. For me, putting the A4 back in was the best thing and fantastic. Plus all the perks of an inboard, like the prop doesn't pull out of the water when it starts kicking up, I installed an Indigo prop. Just fantastic. That combination would punch through anything on the Chesapeake, and think nasty 4 foot chop here. The classic Indigo has been upgraded now to the Radial Winglet. Read more here, and no affiliation in any way other than being a prior very happy customer:
http://www.atomic4.com/propeller.html
So while some might think it odd in today's world, do consider an A4 as a great inexpensive and available power plant for your refit. I'm sure you can find a good ready to drop in A4 for $1000 or less with a little tree shaking. They often can be near giveaways, and Moyer Marine has everything needed to keep them going. Maybe Loren's friend still has his?.....
If you go diesel, I would get up to the 15hp range. I sailed on a friend's E27 with a Yanmar 1GM, and it would get the job done, but really not a lot of guts there for pushing against any wave action or making good time. I could cruise all day at 6+ comfortably in most conditions with my A4. My friend's E-27 really couldn't get much beyond 5.5 on flat water. May not sound like much, until you've got distance/storm/etc. on hand. I think if you get up into the 2GM range, you'd be fine. Price will be up, but everyone likes a diesel.... And for reference, I love the 3GM30F I have in Emerald.