I am running MSBuild 4.0 and my proj ToolsVersion is set to 4.0. The SDK40ToolsPath variable indicates where .NET 4.0 tools are installed. SDK35ToolsPath indicates where the .NET 3.5 tools are installed.
MSBuild reads these variables based on the value of ToolsVersion from the registry: HKEY_LOCAL_MACHINE \ SOFTWARE \ Microsoft \ MSBuild \ ToolsVersions \ 4.0.
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