To: Mattel Corp.

From: Stephen Panetta, John Michael Croft, & Rebecca Thompson

Date: 4/1/09

Re: Madonna doll

As requested, we have performed an analysis on the expected NPV for the proposed Madonna doll project. Our analysis was conducted under the following assumptions, please let us know immediately if any of them have changed or are erroneous as our recommendations are contingent upon their accuracy.

Assumptions:1. Sales life: equally likely to be two, four, six, eight, or ten years2. Potential market share at beginning of Year one: $1,000,0003. Potential market share growth rate: 95% sure between 3% and 7%, average of 5%4. Market share at Year one: at worst 20%, most likely 40%, and at best 50%5. Variable cost of producing a doll during Year 1: equally likely to be $4 or $66. Sales price at Year one: $107. Each year the sales price and variable cost of producing the doll will increase by 5%8. Fixed cost of development in Year 0: equally likely to be $4, $8, or $12 million.9. Competitors: 1 at time 0, during each year that begins with four or fewer competitors,

there is a 20% chance that a new competitor will enter the market.10. To determine Year t unit sales (for t > 1) we assume that during Year t, with x being the

number of competitors at the end Year t – 1, a fraction (.9-.1*x) of last years purchasers will buy a doll during the current year, and a fraction (.2-.04*x) of people currently in the market who did not purchase a doll last year will purchase a doll during the current year.

After conducting our analysis, we have determined the expected NPV for the Madonna Doll project is $956,051. We are 95% sure the expected NPV of this project is between $618,032 and $1,312,069. Additionally, we are 95% sure that the actual NPV of the project is between -$9,076,182 and $12,948,913. According to the regression sensitivity analysis for the NPV of the project, the two key drivers of the project’s profitability are the fixed cost that is incurred at time zero and the variable cost per doll at Year one. In order to increase your chances of profitability it is important that you focus primarily on locking in the $4 variable cost per doll in Year 1 as well as ensuring a $4 million fixed cost of development in year zero. If you can manage to lock in those costs and make them certain, your expected NPV for the project will rise to $6,847,685. Please let us know if you have any questions or comments regarding our recommendations.

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