Pettitte is just 36 years old until June, but he has been debating retirement for the past few years. I have not heard any demands out of him this offseason, but if he's going to reject an offer like the yankees', you have to assume he's looking for a multi-year contract.
The way I see it, Pettitte is only interested in finishing his career with the Yankees, so he should end up working out a deal with Cashman. Although his record doesn't look so great, he did have 18 quality starts, which is usually something the Yankees offense can handle.
Pettitte signing with the yankees would solidify their rotation and put them on a position to compete with any team.
I want him to sign with the Yanks because that will give the Yanks' young guns to get some more experience in the minors or possibly a long relief role in the bullpen.
Another reason he should sign is to build his resumé for the hall of fame. He only has 216 career wins and a 3.89 era. If the Yankees finally give in and offer him a mult-year contrract, Pettitte should sign immediately.