The M16A2 M203 is a variant of the M16A2 fitted with a M203 underbarrel grenade launcher and a flip up leaf sight for use with the launcher. The M203 can be selected with the "F" key, and can use high explosives grenades, flares (both white and green), and smoke grenades.
The leaf sights for the launcher zeroes at 100m and adds roughly 25m of range per quadrant. The standard sights are slightly off; shots hit above the front post and slightly under the bottom quadrant. M203 HE kills in a 5m radius and can wound at 10m. It arms itself in flight and detonates on impact, avoiding death due to misfire.
This weapon can be found on any military grade spawn except from helicopter crash sites. The M16A2 can use standard magazines, as well as 30Rnd. STANAG SD, which will deplete the weapon's range but zombies will react as it was a silent shot. They will still create a normal muzzle flash and sound normal to players.
When aiming the M16A2 M203, it's important to note that your shot will not land on the front post. Your shot placement will nearly always land above. Draw a line on the posts left and right of the center to aim effectively. As a reference, this screenshot shows where to aim, courtesy of a post by fireball on Dev-Heaven.