In Walter's last daydream, he defiantly faces a firing squad, confident in his ability to die courageously. He scornfully rejects the handkerchief or blindfold, preferring to face his fate with unflinching determination.
Walter's final daydream is more than likely triggered by how his wife treats him. She constantly berates him and inundates him with a barrage of criticism. Spiteful and disapproving words often pour out of her mouth the way bullets would shoot forth from a gun. To Walter, facing her daily onslaught of criticism is akin to facing a firing squad. Mrs. Mitty leaves no room for her husband to disagree with her. For example, when she finds him sitting in a chair in the hotel lobby, she proceeds to complain about having experienced difficulty in locating him.
Then, almost immediately, she interrogates him about whether he had managed to purchase the puppy biscuits. Next, she demands to know what he has in the box next to him. When Walter answers that it contains his overshoes, she angrily asks why he couldn't have put them on in the store. Walter answers that he had been busy thinking about some things. Mrs. Mitty then patronizingly comments that she's just going to have to take his temperature when they get home. In all, Mrs. Mitty is unwavering in her criticism of her husband's every action. Today, we would say that she is a relentless micromanager.
So, based on how his wife treats him, Walter's final daydream appropriately illustrates how he is constantly under fire in his own home. To Walter, his wife's overbearing personality makes him feel like he is being ambushed by a firing squad on a daily basis.