Using Time Capsule to extend over ethernet I'm trying to work out if the following is possible.

At the moment I have a Macbook Air connected to home Wi-Fi (802.11n) provided by a modem / router from the phone company which I'm more than happy with.

I also have an old iMac with 802.11g Airport Extreme card which is being revived to work on some old files.  This is in a separate room to the router.

Finally I have a 1TB Time Capsule with 802.11n.  Can I connect this to the existing network, then plug the iMac into its ethernet to share the connection?  

(I would also like to use the ethernet to perform the first back of the Macbook Air, then switch to over-the-air)

Cheers
Yes, when you're setting up your Time Capsule, you're able to configure it so that it connects to an existing wireless access point, thus making use of any of the router's abilities (e.g., VPN, DMZ, etc.) while maintaining the backup capability of the Time Capsule itself.