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Hello Mike, to start with that is a 1970, Model 40 (4 hp).
It has a Thunderbolt II "Phase Maker" ignition system.
There are 3 main components to your ignition system.
The stator, which is one unit but modular, is made up of low speed coils, high speed coils and a capacitor.
The points - in this case they "close" to pass on the power stored in the capacitor and, the ignition coil.
If the stator is toast you might have some difficulty in finding another one - been discontinued a long time and sold for well over 400 bucks when they were available.
The points are still stocked (about 100 bucks) and the ignition coil is also stocked (about 70 bucks) by Merc.
Testing -
Remove the Green and the White wires from the coil (that feeds the sparkplug) and simply do an ohm test accross the two posts - should have basically NO resistance there (.3 - .35 ohms)
If the coil is ok (and you still have the wires off) you can check the points next. Ohm's again - one lead to the White wire the other to any good ground point on the engine block - then SLOWLY rotate the flywheel by hand - you should get the needle sweeping between No continuity and full continuity (as the points open/close).
No "swinging" needle = toasted points.
Last test will tell you if the stator is shot. With the wires still unhooked from the coil, set your ohm meter to X1000 and put the positive lead on the green wire and the negative on a ground spot - you should get NO continuity.
Reverse the leads (so negative on the green wire now and positive on the block) and you should see 20-50 ohms resistance.
One final thought. This model/vintage is (maybe) worth about $200 in the used market if it's running. I would keep that in mind when trying to determine how much you want to spend to get her running...