nominal and real rate

Paisley Co plans to purchase a machine costing $13,500. The machine will save labour costs of $7,000 in the first year. Labour rates in the second year will increase by 10%. The general rate of inflation is 8% and the company’s real cost of capital is estimated at 12%.

The machine has a two-year life with an estimated scrap value of $5,000.

What is the NPV (to the nearest $10) of the proposed investment?

A.$550
B.$770
C.$970
D.$1,150
The correct answer is C.

as i understood if the current price inflates in general rate, we can use the real rate to discount inflate net cash and ignor inflation , and if we want use the nominal value we inflate the current price and use the nominal rate to discount it , here in this question they ignor the inflation and use nominal value to discount . is there some rule on how can i use nominal and real rate ?