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Use a utility knife to cut where the paint meets the top of the baseboards. Use a pry bar lever to carefully remove the baseboards, making sure to not damage the walls. Remove all the faceplates from the electrical outlets.
Measure 32" up from the floor and make a mark on the wall. Using a level, continue that mark all the way around the room. This will insure that the wainscoting is installed evenly. Use a stud finder to locate and mark all the wall studs.
Begin measuring and cutting panels of wainscoting. Use a caulk gun to run beads of paneling glue along the top, bottom and sides of the wainscoting panel. Apply an additional bead in a zig-zag pattern through the middle. Position the panel in place, keeping it flush with the marked level line. Nail the panel into the studs at 6" intervals. Continue around the room.
Transfer locations of the electrical outlets to the back of the paneling. Working from the rear, drill a hole at each corner of the face plate outline. Use a jigsaw to cut along the outline and create the opening.
Measure and cut pieces of the cap molding and the baseboards. Use a miter box and a hand saw to cut 45-degree angles where these pieces meet in the corners. Position the cap molding atop the wainscoting and the baseboards along the floor and nail into place.
Cover all nail holes and seams where panels meet with white caulk. Smooth with fingertips.