As Pete Abe states in this post their is going to be a problem with the Mark Teixiera signing. It probably means they don't have room for Andy Pettitte. This was the very reason why I preferred Adam Dunn. On the other hand, they could just forget about the budget and blow it up for one year and worry about payroll next year when they have even more contracts comign off with a weaker free agent class.
Their may be another option though. They could trade either Damon or Nady. Nady probably makes the most sense and might be able to bring back some value to replenish the diminished farm. Its jsut speculation but the Yankees ARE a business and DO have a budget.