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I'm going through a similar problem with my '87 740 turbo except mine totally died. I have now come to the conclusion that it is the power state; located on the inner front fendor just above the battery, drivers side. I priced the part at a Volvo dealer it is $127. Through an independant parts house I found it for $87. I just gave them the Bosch part number which is stamped on the power stage. I priced it on Saturday but didn't make it to the parts house until after they closed. Looks like I know where I will be 1st thing tomorrow morning!
If I had to trouble shoot it again, the first clue that I would look for would be the tach moving while cranking. No tach equals no spark which limits the problem to the coil, hall sensor; which I do not believe your car has, the power stage or ignition control unit. I believe your car has an RPM senor on the bell housing which reads from the fly wheel. If the tach moves, start checking the fuel delivery.
The FAQs have several articles on trouble shooting which are excellent. Look at the section No Start Check List. Someone put alot of effort into writing a well thoughtout proceedure. The only comment I have is that the people that wrote the articles have a much high level of understanding the electronics than I do. I really had to analyze what the tests were accomplishing i.e. what did each test eliminated as a possible problem.
Good luck!
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