Most likely is the water pump. The water pump has a pee hole on the bottom of it. If it is leaking, it is time for a new one. It is hard to see! As far as replacement...do a search there are some pictures somewhere. I bought a special tool that makes it easier to change without removing too many pieces. As far as the location, it is connected to the engine block towards the front, on the driver's side. You will see a small hose 2 -3" connected to it...
Good luck!

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J.H.
'86 300E