Answer: enterprise value by subtracting the net pension liability.

## Explanation When building financial models involving companies with defined benefit pension plans: - **Option C (Correct)**: The **net pension liability** (pension obligation minus plan assets) should be treated as debt in enterprise value calculations. Therefore, it's appropriate to **subtract the net pension liability** from enterprise value, as it represents a liability that reduces the company's overall value. - **Option A**: Incorrect because service cost is a non-cash expense that should not be added back to free cash flow. It represents the present value of benefits earned by employees during the period. - **Option B**: Incorrect because net interest expense is already included in the income statement and should not be separately subtracted from free cash flow. The proper financial modeling approach treats pension obligations as debt equivalents and adjusts enterprise value accordingly.

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