AUsie said 500 from a 460, so I think he's thinking 250 hp from the 3.7. personally I think you're over doing it. 4bbl carb,altenator conversion, better valve train, reground cam, aftermarket head, pertronix ignition, and a good solid bottom end should be good for around 200-225 hp easily. Mercruiser had the engine rated at 190 at one time. Looking at what fails the most on these engine under normal use. The valve train and head gaskets seem to be the biggest issue. I would definitely get cam bearings installed in the block so you'll have better oil pressure.
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