HD failed on iMac 7.1. How do I use external drive to run computer?

I have an iMac made in mid 2007. It is an Intel Duo Core processor. The hard drive has failed. Apple says I can use an external drive to run it. I have a installation disk for Snow Leopard. How can I install Snow Leopard onto the external disk given that the computer is unusable?

If no way to have an internal hard drive installed into your iMac, then you will need to purchase two good quality, large capacity FireWire 800 (fast data transfer connection) external hard drives.
FIreWire 800 drives will give you an operational speed close to the same speed as your iMac's internal hard drive.
One external hard drive will be used as your iMac's main working drive. The other drive is to be used to create either cloned, bootable backup drive or to be used with OS X Time Machine backup app.
To install OS X Snow Leopard onto an external hard drive, if your iMac's optical drive is still working, power up your iMac holding down the C key on the keyboard and immediately insert the install disc into the optical drive slot on the side of your iMac.
Your iMac should boot up to the system that is on the install disc.
Once you are in the Installer app, go up to the main menu bar and quit the installer.
Then on the main menu bar launch the Disk Utility app and format the external drive for Mac OS X Extended ( journaled ) format with a GUID partition scheme.
You can decide if you want one larger partition on break the drive down into more than one partition for data storage purposes or not.
Once the drive is formatted, quit Disk Utility, relaunch the OS X installer app and proceed, following the instructions to install OS X Snow Leopard onto your external drive.
Once installed, you'll be prompted to restart your iMac and it should automatically find where OS X is installed and boot up your Mac to OS X.
From there, you can go into OS X Preferences Panel and select the software update feature of OS X to update your OS X version to OS X 10.6.8 and all of your Apple installed apps.
In OS X System Prefrences panel under Startup disc icon, click the icon and set the startup disc for the external hard drive that shows your currently installed OS X system.
This OS X will know where OS X is always launched from and won't have to hunt for it when you always startup your Mac.
You will have to reinstall all your third party applications, too.
Good Luck!

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At any time you may wish to contact HP support for assistance.
Please call our technical support at 800 474 6836. If you live outside the US/Canada Region, please click the link below to get a support number for your region.
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I work on behalf of HP
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L.

HD failed on iMac 7.1. How do I use external drive to run computer?

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