Your water pump impeller is toast. The rest is normal stuff. The Merc impeller is small compared to say my 90 Johnrude and even later model Mercs. They work just fine, just smaller. A little up and down play in the driveshaft is also normal although a little alarming to me. The lowers on these outboards are pretty darn crude.
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1996 -19' NV Flats 115 Mercury 4-stroke
1983 -20' Wellcraft Center Console 250 XS
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