Problem:
A firm that owns the stock of another corporation does not have to pay taxes on the entire amount of dividends received. In general, only 30% of the dividends received by one corporation from another are taxable. The reason for this tax law feature is to mitigate the effect of triple taxation, which occurs when earnings are first taxed at the first firm, then its dividends paid to the second firm are taxed yet again, and then the dividends paid to stockholders by the second firm are taxed yet again. Assume that a firm with a 35 percent tax rate receives $100,000 in dividends from another corporation.
Required:
Question: What taxes must be paid on this dividend, and what is the after tax amount of the dividend?
Note: Please provide equation and explain comprehensively and give step by step solution.