Make an Installation program for C# applications and include .NET Framework installer into the setup
Use Visual Studio Setup project. Setup project can automatically include .NET framework setup in your installation package:
Here is my step-by-step for windows forms application:
Create setup project. You can use Setup Wizard.
Select project type.
Select output.
Hit Finish.
Open setup project properties.
Chose to include .NET framework.
Build setup project
Check output
Note: The Visual Studio Installer projects are no longer pre-packed with Visual Studio. However, in Visual Studio 2013 you can download them by using:
Tools > Extensions and Updates > Online (search) > Visual Studio Installer Projects
You need to create installer, which will check if user has required .NET Framework 4.0. You can use WiX to create installer. It's very powerfull and customizable. Also you can use ClickOnce to create installer - it's very simple to use. It will allow you with one click add requirement to install .NET Framework 4.0.
WiX is the way to go for new installers. If WiX alone is too complicated or not flexible enough on the GUI side consider using SharpSetup - it allows you to create installer GUI in WinForms of WPF and has other nice features like translations, autoupdater, built-in prerequisites, improved autocompletion in VS and more.
(Disclaimer: I am the author of SharpSetup.)