I encountered the same problem, Model First approach in mvc4 using EF5. What I did was create project, add a new model, add entities and associations on the edmx diagram. Right click on diagram and select 'Generate database from model'. This generates the sql file.
Now add a mdf file, say, Database1.mdf (Add > New item > Data > SQL Server Database) in the App_Data folder in solution explorer.
Right click > Open on this mdf file. Now in properties pane you have the connection string. Just copy that as it is.
Revert back to your generated SQL script, right click > Exeecute. A pop-up asks for connection parameters. Make sure you have correct value in Server name (use your PC name, or 127.0.0.1).
Now in options, Click the Additional Connection Parameters tab and paste the connection string copied from properties of mdf file.
This worked perfectly from me and is quite logical. There is no need to directly play around with the SQL Server installation directory.