Answer: subtract the funded status of an overfunded plan from debt.

## Explanation When valuing a company with a defined benefit pension plan using DCF: - **Option B (Correct)**: For an **overfunded** plan (plan assets > pension obligation), the surplus represents an asset to the company. Therefore, it's appropriate to **subtract the funded status** (the surplus) from debt when calculating enterprise value. This effectively treats the pension surplus as a reduction in the company's net debt position. - **Option A**: Incorrect because for an **underfunded** plan (pension obligation > plan assets), the deficit should be **added to debt**, not the funded status. - **Option C**: Incorrect because future service and interest costs are already reflected in the pension expense and should not be separately subtracted from free cash flow in DCF valuation. The proper approach treats pension obligations as debt-like liabilities and pension assets as company assets in the valuation process.

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