Sure. Let's go through the answer choices once we breakdown the argument.
Research at a university is partly funded by a humanitarian foundation. University decided to run weapons research, foundation threatens to back out (all reasonable so far). Then the university states they won't use the foundation's money to fund the research and the foundation decided that this is acceptable.
This is odd on many levels but let's look at why. This will help in predicting the answer.
Just because the university says we won't the foundation's money for weapons research, does not mean that is so. Because now the university is able to fund another project using the foundation's money, but has extra because of the foundation's contribution. This money can now go towards weapons research. This is the flaw. The foundation's money is helping to contribute to weapons research.
This is answer choice A.
Let's examine the rest.
B) Perhaps doing something other than purely humanitarian work does not bother the foundation. It is possible that weapons research just crosses the line. What some other department does outside of a humanitarian mission does not impact the argument.
C) I don't think the foundation overlooked this. If anything it sounds like the university did in fact specifically make the promise to make them withdraw their threat and that this is what the foundation wanted.
D) The foundation did not confuse the idea of not using it for weapons research as not being used at all.
E) there is no discussion of means and objectives here. Irrelevant.
I hope this helps. Please let me know if you have any other questions!