Choice "D" is correct. The profitability index is the ratio of the present value of net future cash inflows to the present value of the net initial investment. The profitability ratio requires detailed long-term forecasts of project's cash flows. For longer term projects, cash flow projections might be either unavailable or unreliable.
Choice "c" is incorrect. Free cash flow contemplates cash flows that are available for distribution to securities holders such as debt or equity holders. Cash flows used for the profitability index specifically relate to project cash flows.
Choice "b" is incorrect. The time value of money is considered in both the numerator and the denominator of the profitability index. The profitability index is the ratio of the present value of net future cash inflows to the present value of the net initial investment.
Choice "a" is incorrect. The profitability index incorporates discounted cash flows based on hurdle rates that can be fully integrated with weighted average cost of capital or marginal cost of capital thresholds. Use of these concepts is fully compatible with maximization of shareholder value.