Hatleigh plc is a medium-sized engineering business based in South Wales. The financial statements for the year ended 30 April 2008 are as follows:

Statement of financial position (balance sheet) as at 30 April 2008

£000 Non-current assets Premises 3,885 Plant and machinery 2,520 Motor vehicles 1,470 7,875 Current assets Inventory: Raw materials 824 Work in progress 2,120 Finished goods 5,436 Trade receivables 8,578 16,958 Total assets 24,833 Equity Share capital (25p shares) 8,000 Retained earnings 5,034 13,034 Non-current liabilities 10% loan notes 2013–14 (secured on premises) 3,500 Current liabilities Trade payables 3,322 Bank overdraft 4,776 Tax due 201 8,299 Total equity and liabilities 24,833 Income statement for the year ended 30 April 2008 £000 Sales revenue 34,246 Cost of sales (24,540)
Gross profit 9,706 Expenses (7,564)
Operating profit 2,142 Interest (994)
Profit before taxation 1,148 Tax (35%) (402)
Profit for the year 746 A dividend of £600,000 was proposed and paid during the year.
The business made a one-for-four rights issue of ordinary shares during the year. Sales for the forthcoming year are forecast to be the same as for the year to 30 April Year 2008. The gross profit margin is likely to stay the same as in previous years but expenses (excluding interest payments) are likely to fall by 10 per cent as a result of economies.
The bank has been concerned that the business has persistently exceeded the agreed overdraft limits and, as a result, the business has now been asked to reduce its overdraft to £3 million over the next three months. The business has agreed to do this and has calculated that interest on the bank overdraft for the forthcoming year will be £440,000 (after taking account of the required reduction in the overdraft). In order to achieve the reduction in overdraft, the chairman of Hatleigh plc is considering either the issue of more ordinary shares for cash to existing shareholders at a discount of 20 per cent, or the issue of more 10% loan notes redeemable 2013–14 at the end of July 2008. It is believed that the share price will be £1.50 and the 10% loan notes will be quoted at £82 per £100 nominal value at the end of July 2008. The bank overdraft is expected to remain at the amount shown in the statement of financial position until that date.
Any issue costs relating to new shares or loan notes should be ignored.
Required:

(a) Calculate:
(i) the total number of shares, and (ii) the total par value of loan notes which will have to be issued in order to raise the funds necessary to reduce the overdraft to the level required by the bank.

(b) Calculate the projected earnings per share for the year to 30 April 2009 assuming:
(i) the issue of shares, and (ii) the issue of loan notes are carried out to reduce the overdraft to the level required by the bank.

(c) Critically evaluate the proposal of the chairman to raise the necessary funds by the issue of:
(i) shares, and (ii) loan notes.